Forex

TOKYO (Thomson Financial) - Former finance ministry heavyweight Toshiro Muto vowed Tuesday to defend the Bank of Japan's independence at a crucial time for the economy, urging a divided parliament to back him as central bank chief.

Muto, currently a BoJ deputy governor, pledged to act 'decisively' to pilot Asia's largest economy through the global credit crisis if he is appointed to succeed outgoing governor Toshihiko Fukui who steps down next week.

Appearing in parliament, the former top bureaucrat at the finance ministry brushed aside the opposition's concerns that his close ties to the government may damage the central bank's independence.

'I will try to win the people's trust and I want to firmly secure the independence of the Bank of Japan,' said Muto.

The main opposition Democratic Party of Japan (DPJ), which seized control of the upper house of parliament in elections last year, has warned it may block Muto's nomination.

Opposition lawmakers later had a chance to question Muto during a closed-door session of parliament.

Financial markets are nervous about the possibility of a vacancy at the top of the central bank when Fukui's five-year term ends on March 19.

Muto, 64, told lawmakers that he would take whatever action is needed to keep the Japanese economy in sound health.

'We have to take necessary measures decisively' to keep the Japanese economy on course to recovery, he told lawmakers in the lower house.

'If I can have a chance to use my experience at a time when the Japanese economy is facing an extremely important phase, I want to fulfil my job with all my body and soul,' he said.

On the global and domestic economies, Muto warned that 'downside risks are increasing' as the US economy deteriorates amid housing and credit problems.

'Confusion continues in the international financial markets as a result of the US subprime loan issue,' Muto said. 'The economy is showing more signs of a slowdown. The number of risk factors is not small.'

Analysts believe that Muto would be unlikely to bring significant change to the leadership of the central bank, although he appears somewhat less eager than Fukui to raise the country's super-low interest rates.

Japan's super-low rates have been left on hold at 0.5 percent for more than one year amid growing concerns about the health of Asia's largest economy.

Japanese Prime Minister Yasuo Fukuda has insisted that the BoJ number two is the best candidate to take the bank's helm and guide the world's second largest economy through the global credit crisis.

'The selection of a Bank of Japan governor is faced with difficulties, but we have to get it through,' Fukuda told reporters on Monday.

A parliamentary vote is expected later in the week on his nomination although the DPJ may give its verdict before then.

Finance Minister Fukushiro Nukaga hinted on Monday that the government may resubmit Muto's nomination to parliament even if the opposition rejects it the first time round.

'As we have presented the best plan, we will make efforts to get parliament's consent, including (through) a re-submission,' he told reporters.

But Yukio Hatoyama, secretary-general of the DPJ, called on the government to indicate an alternative candidate to Muto.

'Can't we afford to have any options to choose a different person? That's ludicrous,' he said.