Japan lawmakers seek breakthrough on BOJ head

By Hideyuki Sano

TOKYO (Reuters) - Senior Japanese lawmakers from the ruling and opposition parties called for a breakthrough by Monday to end the stalemate over a new Bank of Japan head, in an effort to avoid a monetary policy vacuum in the midst of an international credit market crisis.

"We have agreed that it is desirable to avoid a policy vacuum, even just for one day," Kenji Yamaoka, parliamentary affairs chief for the main opposition Democratic Party, told reporters after meeting his counterpart from the ruling Liberal Democratic Party, Tadamori Oshima.

BOJ Governor Toshihiko Fukui steps down next Wednesday. The standoff over who will replace him and his two deputies comes amid global market turmoil that sent Japanese shares down more than 3 percent and the yen to a 12-year high against the dollar on Thursday. <.T>

The government on Thursday won a parliamentary vote in the lower house on its nominee to head the central bank, Toshiro Muto, and its two candidates for deputy BOJ governors.

But that did nothing to clarify who will lead the central bank as Muto has already been vetoed by parliament's upper house, which is controlled by the opposition.

Only one nominee -- former BOJ official Masaaki Shirakawa -- has won approval from both houses to be a deputy governor, after the upper house rejected Muto and one other nominee for deputy governor.

Shirakawa could find himself occupying Fukui's seat as acting governor if the row is not resolved.

Yamaoka said he had agreed with Oshima to request a new candidate for BOJ governor, but Oshima and government spokesman Nobutaka Machimura did not say whether they were thinking of putting forward a different name.

While markets are focused on fears of a U.S. recession, traders said the political deadlock had hurt sentiment in Japanese stocks.

"The yen's gain and concerns about the Japanese economy and corporate earnings are pulling the Tokyo market down deeper than Wall Street," said Yoshihiro Ito, a managing director at Okasan Capital Management, referring to a slide in the dollar that threatens to take it below 100 yen for the first time in more than a decade.

"Distrust in Japanese politics is also helping push down the market."

Among catcalls between the parties, parliament's lower house, controlled by the ruling coalition, approved Muto, along with Shirakawa and academic Takatoshi Ito as deputies.

But after the upper house's rejection of Muto and Ito, the vote simply confirmed the political deadlock on the issue.

The government must now either persuade the opposition parties to change their minds, or put up a compromise candidate.

"If the candidate cannot get approval, the government should come up with someone else. I don't think there is any other way," Democratic Party executive Naoto Kan told a news conference.

SHIRAKAWA APPROVED

If Shirakawa is appointed acting governor it would ensure there is someone in the BOJ's top office to answer the phone if U.S. Federal Reserve governor Ben Bernanke calls to coordinate global moves among central banks to combat the credit crisis.

Analysts say a stopgap governor might be unwilling to take critical, long-term decisions, but they also point out that Japan, with interest rates already at a very low 0.5 percent, has little room to maneuver in monetary policy whoever heads the

BOJ.

"The market has to some extent prepared for the risk of a vacuum at the BOJ's top position," said Atsushi Ito, a JGB strategist at Morgan Stanley.

"Rather than who becomes BOJ governor, problems in the United States and Japan's economic slowdown play a far more significant role in deciding the BOJ's policy."

If the row drags on, other options to keep the governor's seat warm include extending Fukui's term or appointing someone else as acting governor.

Ichiro Ozawa, the leader of the main opposition party, the Democrats, sat impassively at the back of the lower house chamber as the lower house vote was taken on Thursday.

Some say he holds the key to resolving the issue and that he will have to meet Prime Minister Yasuo Fukuda to do a deal.

Ozawa has vowed to push the ruling coalition into an early election.

Opposition lawmakers have consistently opposed Muto mainly because of his close ties to government as a former top bureaucrat in the Ministry of Finance -- a relationship they say would hurt the independence of the central bank.

(Additional reporting by Yoko Nishikawa, Leika Kihara)

(Writing by Rodney Joyce; Editing by Hugh Lawson)

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