Page last updated at 11:34 GMT, Wednesday, 19 March 2008

Japan fails to choose bank chief

Masaaki Shirakawi
Masaaki Shirakawi will become the central bank's acting Governor

The Japanese government's second nominee to be governor of the Bank of Japan (BOJ) has been rejected by the opposition-controlled upper house.

Democratic Party (DPJ) MPs voted to reject Koji Tanami - days after vetoing the first nominee, Toshiro Muto.

Governor Toshihiko Fukui retires at midnight (1500 GMT), leaving a vacancy for the first time since World War II.

Masaaki Shirakawa, a former BOJ executive, will become acting governor until a permanent replacement is found.

"It is disappointing that I do not have a successor," outgoing Governor Fukui said.

The Japanese government's nominees for the central bank role were both former deputy finance ministers and the DPJ accused them of being too close to the government.

The situation has led to fears of a power vacuum at the BOJ during a period of turmoil across financial markets.

Economists fear that the slumping US housing market and a worldwide banking crisis threaten to destabilise key economies around the world.

'Common sense'

The choice of governor of the BOJ has to be approved by both houses of parliament, which is a problem for the government, because the upper house is dominated by the opposition DPJ.

The house voted by 125-112 to reject Mr Tanami for the top job.

Senior lawmaker Hidehisa Otsuji, of the ruling Liberal Democratic Party called the opposition move "extremely regrettable".

"We had thought that the opposition camp would use some common sense," he told journalists.

DPJ secretary general Yukio Hatoyama acknowledged criticism for failing to back a nominee.

"I don't reject that completely," he said. "But we decided it would be a much bigger tragedy for the public to have five years of lost national interest than to have a vacuum for a few days."

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