Bank of Japan governor Toshihiko Fukui has opened a policy meeting with a cloud hanging over him in a scandal seen as weakening his credibility as he moves to end five years of zero-interest rates.

Opposition lawmakers have called for Fukui’s resignation, saying he was unethical to have kept an investment in the fund of controversial manager Yoshiaki Murakami who was arrested on insider trading charges.

“Many analysts believe the central banker’s scandal could affect policy management itself,” said the Tokyo Shimbun newspaper. “Needless to say, governor Fukui has responsibility to explain what happened.”
Despite the two-day policy board meeting, the opposition has asked Fukui to appear before a parliamentary committee Thursday over the scandal.

However, the government came in support of the central banker, who has been popular in financial circles since his appointment by Prime Minister Junichiro Koizumi in 2003.

“Our understanding is that he fully explained the situation. I believe the government and ruling party members in general have understood the situation,” said Chief Cabinet Secretary Shinzo Abe, the government spokesman.

“We want the governor to fulfill his duties with the trust of the Japanese public,” said Abe, seen as a likely successor to Koizumi later this year.

Fukui has developed a complicated relationship with Koizumi, who openly questioned his plan to end the five-year policy of “quantitative easing,” under which the Bank of Japan flooded the financial system with cash to offer easy credit.

But in a show of independence, the central bank went ahead with a policy change in March, saying the economy has revived from its decade-long rut and no longer needed the highly unusual policy.

The central bank is expected this summer to follow up by raising interest rates, which are now nearly zero, again prompting concern by the government which cautions that the economy remains fragile.

Fukui’s scandal could lead to greater influence of the government over the central bank, said the Mainichi Shimbun.

“This may cast delicate shades of meaning to the independence and credibility of the Bank of Japan,” the newspaper said.

The central banker admitted Tuesday in the face of opposition charges that he invested 10 million yen (87,700 dollars) in 1999 in the Murakami fund when Fukui was in the private sector.

He said he earned an undisclosed profit and cancelled the contract well before last week’s arrest of Murakami, a former bureaucrat turned activist for shareholder rights.

The Nihon Keizai Shimbun, Japan’s business daily, noted that many central banks abroad publicized the assets of their governors.

“Because of the lack of written, clear rules, the problem happened this time,” it said, adding that Fukui broke no laws.

But the liberal Asahi Shimbun said that even if the investment was legal, “he should have got rid of the investment appropriately when he became the BoJ governor.”

“The head of the central bank, which has power to influence the flow of funds in the Japanese economy, should be extra careful even if it is a personal investment,” the Asahi said in an editorial.

SOURCE: AFP