Japan DPJ's Maehara: opposes too radical a reflationist for BOJ head

TOKYO Thu Feb 21, 2013 1:46am EST

Seiji Maehara speaks during a group interview in Tokyo October 4, 2012. REUTERS/Issei Kato

Seiji Maehara speaks during a group interview in Tokyo October 4, 2012.

Credit: Reuters/Issei Kato

TOKYO (Reuters) - Japan's biggest opposition Democratic Party, which could be key in choosing a new central bank governor, opposes appointing a proponent of extreme steps to reflate the economy but would not automatically reject leading candidate Toshiro Muto, the party's shadow finance minister said.

"I am not saying that Mr. Muto is OK, but just because we rejected him five years ago does not mean we would automatically say 'No' this time," Seiji Maehara told Reuters in an interview.

He dodged a direct answer when asked whether all members of the often-fractious DPJ would agree with that position.

Prime Minister Shinzo Abe has made clear he wants to replace outgoing BOJ Governor Masaaki Shirakawa, who steps down with two deputies on March 19, with someone who agrees with his push for aggressive monetary policy measures to escape the deflation that has plagued Japan for decades.

But Abe is keen to avoid a rerun of the debacle in 2008 when the seat for the BOJ governor was left open for weeks. That means he needs support from opposition parties because his Liberal Democratic Party-led bloc lacks a majority in parliament's upper house, which must approve the nominees.

Muto, a former top finance ministry bureaucrat, has been leading the pack but doubts simmer over whether the DPJ, who as the main opposition party rejected him for the top BOJ post in 2008, could agree to back him now.

Failing DPJ support, Abe's government would have to cultivate smaller opposition parties who favor more radical policies. The same would apply if Abe decides he wants a more aggressive top central banker than the Democrats can swallow.

"It is important that the BOJ governor favor monetary policy easing but we think that an extreme reflationist is not desirable," Maehara said.

He declined comment on the qualifications of any specific potential candidates including Muto or ex-government economist Kazumasa Iwata.

The government is aiming to decide the new BOJ line-up by the end of February.

Abe has already run into opposition from members of his cabinet and financial bureaucrats to more radical candidates such as Asian Development Bank President Haruhiko Kuroda and academics Kikuo Iwata and Takatoshi Ito. Critics of such candidates fear extreme steps might trigger a damaging rise in bond yields.

BOLD, OR BOLDER?

Appointing Muto would signal bolder steps to reflate the economy than those under Shirakawa, but less aggressive measures than would be expected under Kazumasa Iwata.

He in turn is seen as less radical than some other potential candidates such as academic Kikuo Iwata.

Maehara said it would be "a waste" if ADB chief Kuroda left his job mid-stream. In that case, other Asian countries such as China or India would try to wrest the ADB post from Japan.

The Democrats, who were ousted from power by the LDP in a December election, will evaluate candidates for the three BOJ posts as a package, which should include a policy expert, a former government official and an ex-BOJ official, Maehara said.

In 2008, the DPJ argued that appointing a former finance ministry official as BOJ governor could compromise the central bank's independence. But this time the party says it will not rule out candidates simply because of their prior positions.

While the LDP and its partner hold a two-thirds majority in parliament's lower house, they have only 102 seats in the 242-member upper chamber, where six seats are currently vacant. The two-thirds majority in the lower house can over-ride the upper chamber to pass laws, but not on personnel matters.

Winning the backing of the Democrats, who have 87 upper house seats, would clearly be the easiest strategy. Smaller parties such as Your Party have ruled out ex-bureaucrats and want the governor to be a fluent English speaker, which Muto is not.

Muto, currently the chairman of private think tank the Daiwa Institute of Research, is a favorite of Finance Minister Taro Aso, who wants the top BOJ job to go to someone with a proven ability to run a big organization.

Maehara - who said he had not yet been sounded out by the government about candidates - also said the central bank chief should be someone who would not cave in to political pressure and had strong negotiating and risk management skills, given the possibility of unexpected global shocks to Japan's economy.

"This would cause chaos, so someone with negotiating power to resolve such issues through international cooperation, without putting only the interests of his own country first, would be called for," he said.

Once the government sounds out the Democrats, Maehara, DPJ leader Banri Kaieda and party policy chief Mitsuru Sakarai will discuss the candidates, Maehara added.

(Additional reporting by Antoni Slodkowski; Editing by Edmund Klamann and Neil Fullick)

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