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The public controversy over Bank of Japan Gov. Toshihiko Fukui’s 10 million yen investment in a fund led by maverick fund manager Mr. Yoshiaki Murakami, revealed in mid-June, has yet to die down. Prime Minister Junichiro Koizumi and leaders of the Liberal Democratic Party take the position that Mr. Fukui did nothing wrong. Mr. Fukui says he only wants to continue to serve as chief of the nation’s central bank and fulfill his duties. The problem is that a majority of the public appears to doubt whether he can independently remain the guardian of the nation’s currency.

The value of Mr. Fukui’s original investment in the fund of Mr. Murakami — who was arrested in early June on suspicion of insider trading with shares of Nippon Broadcasting System Inc. — increased by 1.4 times in seven years. Toward the end of June, it was also learned that he held some $120,000 in foreign-currency time deposits. A Yomiuri Shimbun poll about 10 days after his fund investment was revealed showed that 40 percent of those surveyed believed that Mr. Fukui should resign and that 71 percent thought the Murakami fund issue would affect the BOJ’s monetary policy. In an Asahi Shimbun poll taken several days later, 67 percent called for Mr. Fukui’s resignation.

When Mr. Fukui made his investment in 1999, he headed Fujitsu Research Institute, a private-sector think tank. No apparent conflict of interest existed at that time, but he surely should have liquidated his investment before he became BOJ chief in March 2003. He should realize that, as a result of Mr. Koizumi’s and LDP leaders’ defense of his investment in the Murakami fund, he became indebted to them somewhat for their protection.

The BOJ chief has the power to influence the direction of the Japanese economy. Now Mr. Fukui is caught in a dilemma: Whichever way he moves — ending or continuing the policy of keeping the interest rate near zero — the public will likely view his decision as having been influenced by his indebtedness to the government and LDP leaders. It is an unhappy situation, not only for Mr. Fukui but for the whole nation.

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