Yamaguchi Approved as Bank of Japan Deputy Governor

By Mayumi Otsuma

Oct. 24 (Bloomberg) -- Japan's parliament approved Hirohide Yamaguchi for deputy governor of the central bank, filling one of two positions that were left vacant for seven months amid political wrangling.

Both chambers, including the opposition-controlled upper house, voted in favor of Yamaguchi in Tokyo today.

The selection has been a sticking point for the government as five of its policy board nominees have been rejected by the upper house since March. Yamaguchi, 57, will ease the burden on Governor Masaaki Shirakawa, who since his appointment in April has had to respond to deepening global financial turmoil and a deteriorating economy with only one of his two deputies.

``Yamaguchi is an expert in the bank's internal management and has plenty of experience negotiating with politicians,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo. ``With him, Governor Shirakawa can put more energy in monetary policy issues.''

The central banker has been at the Bank of Japan for 34 years, working in the monetary policy planning, research, personnel management and financial supervision divisions. He has been one of the bank's six executive directors since 2006, in charge of monetary policy.

``Yamaguchi has already effectively been acting as a substitute deputy,'' said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. He has a ``reputation for coordination,'' she added.

Low-Rate Policy

Yamaguchi told lawmakers this week that the central bank's policy of keeping interest rates near zero percent may have contributed to the worldwide financial turbulence, including the yen carry trade, in which investors borrow cheaply in Japan and put money into higher-yielding assets abroad.

The central bank kept borrowing costs near zero for five years through July 2006 to spur economic growth and counter deflation. It has since raised the benchmark overnight rate to 0.5 percent, still the lowest among the industrialized world.

Investors reversed carry trades in recent weeks as the financial crisis deepened, causing the currency to surge to a 13-year high against the dollar today.

Yamaguchi also said the central bank should pay attention to risks of inflation as well as the possibility of further deterioration in the economy. The Bank of Japan shelved a policy of gradually raising interest rates in April.

When asked about the BOJ's absence from this month's joint rate cut by North American and European counterparts, he said central banks should decide policy based on the economic and price conditions in their own economy.

Shirakawa made similar remarks in parliament today.

``Given that Yamaguchi has assisted Shirakawa, his participation probably won't influence the bank's policy stance,'' said Izuru Kato, chief market economist at Totan Research Co. in Tokyo.

Yamaguchi will join Kiyohiko Nishimura, who taught economics at Tokyo University before joining the central bank in 2005. Nishimura became deputy governor in March.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net