BOJ Fiasco Reveals Painful Truths about Politics in Japan
Rooted in long-held assumption of unending LDP rule, central bank
void stems from complacency, lack of foresight; media not free of
Masahiko ISHIZUKA (Councilor for the Foreign Press Center Japan and a Lecturer at Waseda University)
As Japan has entered an unprecedented period - after World War II at
least - without a head for its central bank, the domestic media are
describing the country as if it were a "failed state." It may be so,
as the government's failure to appoint a Bank of Japan governor to
succeed Toshihiko Fukui when his term expired on March 19 could not
have come at the worse time, with the turbulence in world credit
markets and concern over its impact on the global economy growing
more ominous each day.
Prospects for Japan's economic growth look just as precarious as in
other industrialized countries, and the void at the top post of the
central bank is being perceived as particularly worrying. Always
conscious of how the country looks to the outside world,
commentators and editorialists are calling the situation a
"disgrace," an "embarrassment" or a "shame" internationally.
"Failure of politics" is a popular phrase making headlines, and it
is fashionable to blame the blunder on the system rather than to
hold particular politicians responsible. The nation has simply been
driven into this situation because the government's nominee for the
post was voted down, twice, in the upper house controlled by
By law, the governor must be approved by both houses of the Diet.
Unlike other bills, the lower house, which happens to be controlled
by the ruling parties, does not possess superiority over the upper
house in legislative power on the appointment of the central bank
chief. Nor is there a stipulation to allow an incumbent to continue
beyond the expiration of his term until a successor is appointed (as
in the U.S.).
Such a system has been in place for 10 years, since the revised Bank
of Japan Law was passed on April 1, 1998. In hindsight, what has
happened now is a possibility the government should have been aware
of, and a contingency plan should have been prepared.
Who'd have thought?
The main question is why few, not least of which the media, have
ever raised the issue or imagined what might happen until it became
a troubling reality. Herein lies the problem of the Japanese
political system, and democracy, which have been exercised on the
almost unquestioned assumption that the Liberal Democratic Party's
rule would be unending. That is why, when the new Bank of Japan Law
was put in place, nobody was imaginative enough to conceive the
divided parliament that has since come to fruition. This political
climate of continuous momentum is proving to be dangerous, all the
more because people are so used to it that it has a numbing effect.
This is a legacy of the so-called 1955 system, in which Japan's
postwar political setup was reorganized into forces represented by
what is today's LDP and the now defunct opposition Japan Socialist
Party. The 1955 system was a two-party system in disguise, in which
change of power was - by tacit agreement between the ruling and
opposition camps - virtually ruled out. This perpetuated the LDP's
rule, with the opposition forces content to play the role of gadfly,
never serious about wresting power away from the ruling camp.
When the government of Prime Minister Junichiro Koizumi captured
popularity for his reform drive, he was also said to have eroded the
1955 system as a mechanism of backroom dealings between the ruling
and opposition parties. In fact, however, the Koizumi government
appears to have reinforced the 1955 system by his landslide victory
in the lower house election in 2005.
Then came the devastating defeat for the LDP in the 2007 upper house
election, resulting in an unprecedented situation of a divided
parliament in which its two houses are under the control of
different parties. The current vacuum at the BOJ's top post, which
has occurred at an extremely unfortunate time, is basically blamed
on the arrogance of the ruling party, which was lackadaisical in
paying attention to the changing political climate.
The media are no less critical of the opposition forces - the main
opposition Democratic Party of Japan in particular - pressing them
to acknowledge their share of responsibility for the central bank
mess. There is some truth to the media's allegation as the DPJ,
obsessed with grabbing power from the LDP, appears to have taken the
central bank governor nomination as a political hostage to hurt the
ruling camp. The idea is that this is a matter that should be kept
above such political confrontation and horse trading.
The price of not having a central bank chief at this critical
juncture could be dear, and the consequences could be dire for the
Japanese economy. But it is also true that this tumultuous event has
revealed something that could have gone unquestioned or even
unnoticed. For example, it was no secret that Toshiro Muto - BOJ
deputy governor, whom the government nominated as the next governor
only to be rejected in the upper house - had been groomed for the
top post since he joined the bank upon his retirement as vice
finance minister. It was as if his appointment was a forgone
conclusion, never to be questioned.
As most newspapers argued, Muto might have made a good central bank
governor, and it may have been too simplistic and wrong to reject
him - as the DPJ and other opposition forces did - only on the
grounds of his past finance ministry career. But it is also true
that he had undergone little public scrutiny in the past five years
as a would-be governor. Nor, it seems, has serious discussion been
made about the role of the central bank governor and what kind of
person is really qualified for the job.
Given the history of the Finance Ministry's dominance over the BOJ,
with many retired top finance officials routinely taking over as the
bank's governor, it is not at all irrelevant to take a skeptical
look at Muto - or any other candidate from the ministry - and have a
deep discussion on the relationship between fiscal policy and the
That is largely a role the media should play, and they have failed.
Under time pressure as the expiration of Fukui's governorship
approached day by day, editorial comments urged that Muto should be
endorsed and that, as he seemed well-qualified and there was no
alternative, it was irresponsible for the opposition to oppose him.
The argument would have been persuasive had it been raised much
earlier with a view toward convincing the general public, for whose
well-being the BOJ governor serves after all.
(Originally appeared in the March 31, 2008 issue of The Nikkei
Weekly, reproduced here with permission.)