Japan Policy & Politics: 8TH LD: Koizumi names Fukui as new BOJ chief

TOKYO, Feb. 24 Kyodo

(EDS: ADDING COMMENTS BY FUKUI, IWATA IN 5TH-7TH PARAS)

Prime Minister Junichiro Koizumi has named former Bank of Japan (BOJ) Deputy Governor Toshihiko Fukui as the new central bank chief, hoping he will use his expertise in monetary affairs to help turn around Japan's economy, government officials said Monday.

Fukui, 67, currently chairman of the Fujitsu Research Institute, will officially become BOJ governor for a five-year term if he is approved by both chambers of the Diet before BOJ Governor Masaru Hayami's term expires March 19.

Koizumi also decided to appoint Kazumasa Iwata, 56, director general for economics assessment and policy analysis at the Cabinet Office, and Toshiro Muto, 59, former vice finance minister, as the bank's two deputy governors, the officials said.

Iwata's appointment reflects growing calls from senior coalition lawmakers and government officials for a radical monetary policy to combat deflation, while Fukui is expected to pursue a conservative policy, analysts said.

Fukui suggested Monday afternoon he is against inflation targeting as a tool to combat deflation.

The controversial strategy cannot solve all problems ''like a magic wand,'' he told reporters.

Meanwhile, Iwata, known to be an advocate of inflation targeting, told reporters Monday it is ''a very orthodox policy regime widely adopted in advanced countries.''

The Koizumi administration hopes Fukui will use his long career at the central bank and contacts in Japan and abroad to shore up the world's second-largest economy, which has been mired by persistent price falls and massive nonperforming loans held by banks.

It will be the first change in the top BOJ post since the April 1998 revision of the Bank of Japan Law, which increased the central bank's independence from outside control.

Finance Minister Masajuro Shiokawa told reporters Fukui has experience in monetary matters, is versed in international affairs and maintains a neutral stance on policy formulation.

Chief Cabinet Secretary Yasuo Fukuda raised expectations that the government will work with the BOJ to tackle deflation, indicating it will discuss the possibility of introducing inflation targeting with the central bank's new leadership.

Koizumi has placed priority on fighting deflation in his economic policies because it is considered a major cause of Japan's economic woes.

Ha has said he wants the next BOJ chief to aggressively act to overcome deflation and strengthen the financial system.

The new BOJ chief should have deep knowledge of financial matters with ample experience in and insight into international affairs, Koizumi has said.

Koizumi has yet to publicly announce his choice of Fukui as Hayami's successor.

Fukui, expected to become the 29th central bank governor, had topped the list of contenders and received wide support from the business community.

The BOJ is also said to have favored Fukui because it believes him unlikely to yield to pressure, such as calls on the central bank to adopt an inflation target to overcome deflation, which Hayami has rejected as ''reckless gambling.''

A native of Osaka Prefecture, Fukui joined the BOJ in 1958 after graduating from the University of Tokyo.

He resigned from the central bank as deputy governor in March 1998 along with then BOJ Governor Yasuo Matsushita to take responsibility for a bribery scandal involving a senior central bank official.

Until then, he had been called the ''prince'' of the central bank because he had distinguished himself through his abilities, and was virtually assured of becoming BOJ governor.

Observers will be watching to see whether the new central bank governor maintains or veers from Hayami's policies.