Government urged to let bank off the leash

The Japanese government was advised yesterday to loosen control of its central bank in a set of recommendations which would mark the first hesitant steps towards an independent Bank of Japan, writes Richard Lloyd Parry.

In proposals which could become law as early as next January, a government- sponsored panel urged the Prime Minister, Ryutaro Hashimoto, to abolish the rules that allow him to sack bank officials at will and in effect to veto policy decisions. While stopping far short of a Bundesbank-style arrangement, they would allow the BoJ's governor more leeway in formulating monetary policy.

"We have now made the first step to securing the Bank of Japan's independence," Yasuhiko Torii, president of Tokyo's Keio University and chairman of the study group said yesterday. "If these ideas materialise, we will have a central bank on a par with those of other advanced countries."

The 1942 law under which the Bank of Japan is presently constituted, gives politicians considerable power over the bank, both direct and indirect. The governor and his executives can be dismissed for disagreeing with government policy, and their board always contains senior bureaucrats from the finance ministry and economic planning agency. Under the new proposals, government officials would no longer be formal members of the board.