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Bank of Japan Gov. Toshihiko Fukui has made public that he invested 10 million yen in an investment fund led by maverick fund manager Mr. Yoshiaki Murakami, who was arrested June 5 on suspicion of insider trading involving purchases of Nippon Broadcasting System Inc. shares.

Although Mr. Fukui’s investment was made while he was in the private sector, his failure to withdraw the investment when he became BOJ chief casts doubt on his neutrality as the nation’s central banker and undermines the public’s trust in him as the guardian of stability with regard to the value of the yen and overall price levels in the economy.

Mr. Fukui’s revelation came Tuesday while he was answering a question from an opposition party member in the Upper House’s Financial Affairs Committee. That day the Nikkei stock index plummeted over investor worries that the U.S. Federal Reserve may raise the federal funds rate again to fight inflationary pressures attributed to higher prices for oil and raw materials, and thus slow down the U.S. economy. A selling rush followed Mr. Fukui’s statement. The 225-issue Nikkei stock average fell 614.41 points, or 4.14 percent — the biggest single-day loss since Sept. 12, 2001, when it plunged 682.85 points following the 9/11 terrorist attacks in the United States.

Mr. Murakami set up his fund in 1999 after quitting his bureaucrat job in the then Ministry of International Trade and Industry. Mr. Fukui invested 10 million yen in the fund, together with several other people. He explained that he invested the money as a token of his support for Mr. Murakami’s efforts to improve corporate governance in Japan’s business world. At the time, Mr. Fukui was head of Fujitsu Research Institute, a private-sector think tank. In March 1998, Mr. Fukui had resigned as BOJ vice governor over a corruption case involving a BOJ official. He became the think tank head in November that year. Mr. Fukui and Mr. Murakami came to know each other through study meetings sponsored by the think tank.

Later Mr. Fukui started receiving advice from Mr. Murakami on the management of his think tank. For his part, Mr. Fukui became an unpaid adviser to the Murakami fund, although his role did not involve giving advice on concrete investment decisions. When he was appointed BOJ governor in March 2003, he stopped serving as adviser to the investment fund.

There is nothing wrong with a private person managing his or her own assets, including stock investments. But it was careless of Mr. Fukui to maintain his 10 million yen investment in the Murakami fund after he became BOJ governor. He should have been more conscious of the weight of his position. Any public statement by a BOJ chief has a great impact on financial, foreign exchange and stock markets.

It would not be surprising if the timing of Mr. Fukui’s investment in the Murakami fund fuels public suspicion and anger. It coincides with a period when the BOJ, under its ultra-loose monetary policy, was keeping the short-term interest rate at almost zero percent. People blessed with money have had opportunities to make profits in the stock market while ordinary depositors have suffered from the rock-bottom interest rate. According to one estimate, depositors would have earned about 280 trillion yen if the interest rate had remained at the 1991 level.

Mr. Fukui said his application to cancel his investment, made in February, is expected to take effect toward the end of this month. BOJ rules say that BOJ officials and employee must refrain from any moneymaking activities that could be expected to generate public suspicion. Mr. Fukui says he never cashed in his Murakami fund investment and is paying taxes on the gains from the investment. He insists that his Murakami fund investment did not violate BOJ rules.

The least he should do is disclose all relevant information, including the circumstances that led to his investment in the fund, his adviser activities for the fund and the gains he has earned from the investment. Although Mr. Fukui’s investment amount may not be very large, Mr. Murakami, who has acted like a “greenmailer” in his stock-investment maneuvers, has been able to make use of it. One way to prevent the recurrence of a case like Mr. Fukui’s would be to make it compulsory for leading BOJ officials to disclose their assets.

Mr. Fukui’s revelation has come at a delicate time. The Japanese economy appears to be emerging from a long spell of deflation. The time will come when the BOJ must end its long-standing zero-interest-rate policy. Careless behavior such as that demonstrated by Mr. Fukui must not be allowed to stand in the way of correct decision-making at the BOJ.

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