Japanese Bank Chief Takes Over Helm in Deflation Fight
Tokyo -- JAPAN'S NEW central bank chief, who takes office tomorrow, could immediately face his first test -- bracing his country's economy against the shock of a U.S.-led war in Iraq. But the crisis also could offer incoming Governor Toshihiko Fukui an unexpected opportunity to fight an enemy closer to home: deflation.</br></br>Mr. Fukui takes the helm of the central bank of the world's second-largest economy on the same day as the U.S. deadline for Iraqi President Saddam Hussein. War fears have helped to drive Japan's stocks to 20-year lows, threatening banks and other corporations with losses just weeks before the fiscal year ends March 31.</br></br>Yesterday, in his first public questioning in the Japanese Parliament, Mr. Fukui signaled a readiness to take emergency liquidity-boosting measures similar to those of his predecessor, Masaru Hayami, following the Sept. 11, 2001, terrorist attacks. At that time, the Bank of Japan injected more than two trillion yen ($16.88 billion) into money markets in less than two hours, then pumped trillions more into money and currency markets during the next several weeks.</br></br>The BOJ "must get into war mode," Mr. Fukui told lawmakers. "If war breaks out, we must prevent an excessive shock to the market."</br></br>Yet opening the yen floodgates during a Middle East crisis could also offer the 67-year-old Mr. Fukui an opportunity to attack the deflationary pressures that have contributed to Japan's long-running economic funk, economists say. Mr. Fukui could continue a war-driven, expansionist monetary policy even after war subsides, effectively letting him back into a looser stance without seeming to break completely with past bank policy.