TOKYO -- Debate surrounds the choice for the next governor of Japan's central bank -- and whoever it is faces a tough challenge steering monetary policy through the choppy waters of market turmoil and anxiety about a global slowdown.
With barely a month left before the five-year term of Gov. Toshiko Fukui ends on March 19, various names have been tossed about in the Japanese media as a possible successor.
Just last week, a deputy governor at the Bank of Japan, Toshiro Muto, who is also a former bureaucrat at the powerful Ministry of Finance, was widely expected to take the top spot.
But some members of the opposition Democrats, who are eager to wield their influence, are reported to favor Yutaka Yamaguchi, another deputy governor at the bank, according to analysts.
Fuji TV reported that Democratic Party plans to oppose Muto, citing an unidentified government official, mainly in principle because he became assumed as the pick so early in the game.
Sankei newspaper reported just the opposite: The Democrats are backing Muto after all. Although they had initially opposed Muto as too close to the ministry, they decided that may cause confusion and detract from Japan's international credibility, the report said without giving sources.
Prime Minister Yasuo Fukuda has yet to nominate a person for the job, and both houses of parliament must approve the nomination. The opposition controls the upper house of Parliament after a major electoral defeat for the ruling party last year -- its worst defeat in decades.
Uncertainty about who will become BOJ chief comes at an awkward time for Japan's central bank, which is seeking to navigate its way through a time of global economic anxiety and market turbulence triggered by the credit crisis in the United States. Many are worried that a slump in the U.S. economy -- a vital export market for Japan -- will drag on growth here.
"What we lack now is stability. Everything is so uncertain," said Hitomi Kimura, fixed income strategist at J.P. Morgan Securities Japan Co. "The worse thing they can do is bring someone new to monetary policy and add more uncertainty."
Many analysts speculated the Bank of Japan was poised to raise interest rates last year amid signs of steady growth. But all that has changed now and some are starting to bet the central bank may even cut rates.
A major problem, however, is that with its key interest rate at 0.5 percent, there's not much left to cut. That's left the BOJ with few options at its disposal even if it wants to show solidarity with the U.S. Federal Reserve, which has been slashing interest rates aggressively.
On Friday, the bank's policy board voted unanimously to keep rates on hold.
The decision came a day after the government said Japan's economy grew at a surprisingly robust 3.7 percent annual rate in the fourth quarter on the back of strong exports and business investment. But many analysts believe growth will moderate -- or even grind to a halt -- later this year.
Muto has been groomed by Fukui to be his successor. His reputation as the status-quo candidate has both helped and hurt him. Supporters seem him as the safest pick, but others would like someone who is less obviously politically connected.
Muto has not earned much of a reputation except that he is a loyal supporter of Fukui's moderately hawkish policies. He has shown a creative flair with his whimsical oil paintings that depict orange cats looming in a forest and other colorful images.
Recently, he has tried to allay worries about a global slowdown, repeating assurances that the Japanese economy will keep growing, although at a moderate pace.
"It seems reasonable to expect that thanks to the widening base of growth the world economy will continue to expand robustly," Muto said in a speech last month. "However, downside risks to this outlook are growing."
Fukui, 72, has had an embattled career.
He was forced to resign as Bank of Japan deputy governor in 1998 because of an embarrassing bribery scandal at the central bank, centered around wining and dining by the private sector in return for favors. Some of those dinner parties were held at restaurants where the waitresses didn't wear panties.
The scandal culminated in the resignation of the finance minister, the BOJ governor and his deputies -- including Fukui -- as well as the arrest of four ministry officials.
Fukui overcame that, however, to assume the top position in 2003. But his reputation was tarnished again last year when he acknowledged investing 10 million yen ($92,600) in a fund run by flamboyant entrepreneur Yoshiaki Murakami, who was arrested on charges of insider trading.
Fukui's investment was not illegal, but a public outcry erupted demanding his resignation. He refused to step down. He apologized, took a pay cut and set up a committee at the central bank to review rules for its officials' assets.
Yuji Shimanaka, chief economist at Mitsubishi UFJ Securities Co., says Muto still may be the safest pick in times of economic uncertainty.
"Continuity in Bank of Japan policy is crucial," he said.
