Bank Of Japan Official Arrested On Corruption Charges

A corruption scandal engulfing Japans economic power base hit the Bank of Japan (BoJ) on Wednesday as it prepared to proclaim a new independence and greater transparency in its running of monetary policy.

Exactly three weeks before a revised BoJ law goes into effect, giving the central bank more autonomy from the ministry of finance (MoF), prosecutors raided the imposing BoJ headquarters and arrested a senior official suspected of taking bribes from major banks.

Prosecutors said they arrested 42-year-old Yasuyuki Yoshizawa, head of the capital markets division of the BoJs credit and management department, on suspicion of accepting 3.18 million yen worth of entertainment from the Industrial Bank of Japan as well as 1.12 million worth from Sanwa Bank in exchange for information on the central banks money market operations.

 

Yoshizawa is charged with having accepted entertainment such as golf trips and meals on 59 occasions from IBJ worth 3.18 million yen ($24,800) between May 1993 and May 1997, the statement said.

In exchange, the official gave the IBJ advance information on the BoJs daily money market operations which determine short-term interest rates. He also passed on inside information about other commercial banks, as well as giving the IBJ special treatment on bidding for repurchase operations, the statement said.

From June 1993 to June 2, 1997 on 30 occasions he accepted meals, golf trips and other entertainment worth 1.12 million yen ($8,700) from Sanwa Banks deputy planning section chief, the statement said. In exchange, he gave similar favours to Sanwa (as were given to the IBJ). In addition, he arranged special treatment for Sanwa in setting up collateral when borrowing from the central bank, the statement said.

The stockmarkets reaction was muted. Brokers said they were paying more attention to whether prosecutors raids on the MoF would widen. The key 225-share Nikkei average ended down 226.68 points or 1.33 per cent at 16,756.14.

Japans top government spokesman said Bank of Japan governor Yasuo Matsushita bears responsibility for the corruption scandal which has hit the central bank, but declined to comment on whether the governor should resign.

Matsushita obviously bears responsibility as the supervisor but I will not comment on whether the governor should resign or not before the investigation has revealed the case in its entirety, chief cabinet secretary Kanezo Muraoka told reporters.

Meanwhile, BoJ senior deputy governor Toshihiko Fukui apologised to the Japanese public. Fukui told a Parliamentary panel that the arrest was regrettable and said the BoJ would make efforts to regain the publics trust. Fukui promised to take all necessary measures, but did not elaborate.

Analysts said the spread of the scandal to the BoJ would surely increase calls for top central bankers to resign, but they predicted little impact on the banks interest rate policy or efforts to be more open.

The BoJ has more autonomy from the government, especially from the MoF, said money market analyst and BoJ watcher Masahiro Tsukakoshi at Standard & Poors MMS.

Even though politicians are asking for some changes in monetary policy, the BoJ will make its own decisions based on its view of prospects for the economy, Tsukakoshi said.

Revisions to the Wold War Two-era BoJ Law, which take effect April 1, strip the cabinet of the right to fire the BoJ governor and deputy governor, giving it instead to parliament, and eliminate the governments ability to force the bank to postpone policy decisions. The Policy Board is also expanded, with government representatives allowed to participate only when necessary.

Already, the BOJ has sought to remake itself somewhat in the image of the US Federal Reserve holding pre-announced monetary policy meetings and releasing minutes of the meetings roughly a month later.