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The Bank of Japan’s Fukui and his dealings with Murakami June 15, 2006

Posted by fukumimi in Economy & Business, Finance, Japan.
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The Bank of Japan's Governor, Toshihiko Fukui, is under pressure after it was revealed that he had put JPY10M in the care of Murakami, who was recently arrested on suspicion of insider trading.

Whilst I don't think anyone in their right mind would blame Fukui for having made the investment in the first place (when he was in the private sector), it does seem to betray poor judgement that he did not sever ties with Murakami when he became Governor of the Bank of Japan, a position in which he holds a great deal of power in influencing the Japanese economy and market conditions.

Fukui was called before the Upper House Financial Affairs Committee, and was criticised for not disclosing how much profit his investment has made, and for not giving a sufficient explanation as to why he contacted the Murakami Fund in february of this year to recall his funds.

Is it a stretch of the imagination to suggest that Fukui, being in an influencial position in the financial machine, heard about investigations into Murakami?

Fukui explained he did not think his investment in the fund was a problem because he did not have any control over how the funds were managed.

He however stated that he also holds some stock in individual companies, stock which came to be in his possession during his time in the private sector when he was a board member of several companies. He said he has "frozen" his portfolio, but he admitted he has not put them into a trust mechanism or similar.

Koizumi told the press he did not think there was a problem with Fukui's actions, as long as they are consistent with BoJ rules regarding this issue.

However, it seems that the rules themselves are inadequate, given that the Governor (or any other senior BoJ staff) is not required to make public declaration of assets, and there is no explicit rule preventing people in Fukui's position from having interests which may conflict with his job. Such a situation certainly is not allowed for members of the US FRB.

Japan needs to overhaul the environment around the stock market and the financial sector as a whole. To do so, prominent members of the financial community must believe in a new (to Japan), better, more transparent model. If Fukui was such a believer, he would not have maintained his financial interest in the Murakami Fund, nor his stock portfolio.

If Koizumi is serious about real reform, he needs to ask Fukui to step down.

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Comments»

1. Gen Kanai - June 16, 2006

I’m fairly certain that the forces that moved on Murakami knew that they would also affect Fukui.

That said, I’m sure there are many, many influential people who have holdings in the Murakami Fund. Only one of them was the BoJ Gov., however.

2. Gen Kanai - June 20, 2006
3. fukumimi - June 20, 2006

Oh yes, the no panty shabu shabu affair.

That is when he “quit” and went to the Fujitsu thinktank, as I recall.

Apparently as long you do time “in the wilderness” as penetance, you can jump back on the elite career path if you are one of the chosen few.

With regards to the current press coverage, the press needs to look more closely at why Fukui decided to recall his funds in February. You have to look at that personal investment decision together with the subsequent fiscal policy change announced by the BoJ. It could be argued that Fukui forsaw that markets would be adversely affected by the change, and preempted this as far as his own finances were concerned. Alternatively, it could also be argued that he was in a better position than most to have knowledge of the Murakami bust as the case was being prepared by the prosecutor’s office, or that he was in a good position to forsee the global stockmarket weakness ahead of time.

I won’t speculate on the likelihood of any of these possibilities, but I must say a person in his position is required to _appear_ to be whiter than white, and in that regard he has failed and his position should be untenable. But stranger things have happened in Japanese politics, and this surely is as much a political issue as a fiscal/economic one.

4. Chris_B - June 29, 2006

If Fuikui quits he’ll just be replaced by another tool of the old guard. Whats needed is, as you say, a complete reform of BOJ governance and market regulations. The FSA, SCEC, BOJ and the TSE are laughable in terms of transparency and governance.

5. fukumimi - June 29, 2006

Agreed and agreed.

What happened to structural reform that Koizumi brags about?

It sure doesn’t seem to be happening in many very important areas. Finance, Law, Medicine, etc etc etc

6. Chris_B - June 29, 2006

well at least they put a new coat of paint on the way highways are done, thats something….


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