JAPAN CENTRAL BANK
David Guttenfelder  /  AP
Bank of Japan Gov. Toshihiko Fukui speaks to the media Tuesday in Tokyo where he apologized for an investment scandal that triggered calls for his resignation.
updated 6/20/2006 9:44:58 AM ET 2006-06-20T13:44:58

Japan’s central bank chief apologized to the nation Tuesday and said he would take a pay cut for an investment scandal that has set off calls for his resignation. He also said the bank has set up a committee to review rules for its officials’ assets.

Gov. Toshihiko Fukui also said he would not step down and wanted to complete his job. His term runs through March 2008.

“I am very, very sorry. I deeply apologize to the people,” Fukui said at a news conference. “The Bank of Japan’s compliance rules have been widely criticized. This must be taken seriously.”

Fukui has come under fire since stating last week that he had invested 10 million yen ($86,000) seven years ago in a fund managed by Yoshiaki Murakami, who was arrested June 5 on suspicion of insider trading.

While Fukui has broken no law, the incident has raised questions about the ethic standards for Japan’s financial officials — and comes at delicate time when the central bank is about to start raising interest rates amid signs of a long-awaited economic recovery here.

To show his remorse, Fukui said he will donate the profits he made from his investment to charity and will return 30 percent of his salary for six months.

The Bank of Japan said Tuesday the value of Fukui’s investment more than doubled in nearly seven years to 22 million yen ($190,000), and his investment produced up to 4 million yen ($35,000) in annual profit.

A public outcry has erupted in recent days because Fukui has been perceived as making a tidy profit from the Murakami investment while ordinary Japanese have earned virtually no interest on their savings because of the Bank of Japan’s zero percent interest-rate policy.

A weekend public opinion survey by Kyodo News agency showed that 49 percent of the respondents thought that Fukui should resign, while only 11 percent said the investment was not a problem.

The central bank says Fukui has not broken the law or violated the bank’s internal regulations. He bought the Murakami Fund shares in 1999, while working at the Fujitsu Research Institute, a private think tank.

But some people have questioned the ethics of holding onto such investments after he became central bank governor in 2003.

Fukui defended his decision as a gesture of support to Murakami at a time when Japan’s economy suffered from stagnation and insularity and needed new ideas.

But Murakami, one of Japan’s rare shareholder activists, was arrested earlier this month on allegations of insider trading. Prosecutors suspect he bought a large quantity of shares in Nippon Broadcasting System last year based on advance knowledge that Internet services provider Livedoor Co. would make a takeover bid for the Japanese broadcaster.

Fukui denied he violated ethical standards, but he acknowledged he should have been more careful about holding on to the fund after he became governor.

“I realize there is serious criticism and I accept it fully,” he said. “I have always acted with strong integrity.”

Fukui said the central bank on Tuesday set up a committee, including legal experts and outsiders, to review compliance regulations and come up with a fix as soon as possible.

The Bank of Japan now requires its senior officers to report any investment sales, purchases or profits but does not impel them to sell holdings they already have or forbid them from investing in funds. Also, they are advised not to engage in insider trading or take advantage of privileged information.

Opposition politicians have demanded Fukui step down, but Prime Minister Junichiro Koizumi and other ruling party officials have defended Fukui and say he should stay on as BOJ chief.

“I ask that I be allowed to complete my job,” Fukui told reporters.

In March, the Bank of Japan ended a monetary policy called quantitative easing, which kept interest rates at zero and flooded the financial markets with extra cash. Amid signs of recovery and the end of deflation, the BOJ has said it will raise interest rates at some point in the unspecified future.

Until recently, analysts expected that increase to come in July, but with this scandal and the recent drop in Tokyo’s stock market, some are putting off their projections.

Fukui’s comments Tuesday that the bank will look at prices and the economy to gradually adjust interest rates but be “forward looking” rekindled speculation that a rate increase may come relatively soon. In anticipation, the yield on the 10-year Japanese government bond rose 4.5 basis points to 1.860 percent.

“He has been dovish in his public remarks for recent days, making players believe that a rate hike will be postponed from July to either August or September,” said Teruhisa Tsuji, a currency trader at Mizuho Corporate Bank. “But Fukui sounded a bit more hawkish today and the market reacted as a result.”

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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