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BOJ Keeps Rates Steady, Shirakawa Confirmed as Chief

The Bank of Japan left its interest rate target unchanged at 0.5 percent on Wednesday, as expected, in a unanimous vote.

While the BOJ's rate decision was no surprise, markets are watching closely to see if it has become more pessimistic in its outlook for the Japanese economy.

The BOJ has kept monetary policy on hold since raising the key overnight call rate target from 0.25 percent in February last year.

The rate review was completed as parliament appointed acting governor Masaaki Shirakawa to the job permanently.

Japan's lower house of parliament approved government nominee Shirakawa, in time for him to attend a meeting of G7 finance leaders in Washington this week. Shirakawa, who had been serving as acting governor of the central bank, earlier won the backing of parliament's upper house.

Rejection by the opposition-controlled upper house of the government's two earlier nominees for the job had left the central bank without a permanent head for the first time in 80 years, following Toshihiko Fukui's retirement last month.

The lower house also approved government nominee Hiroshi Watanabe, a former senior finance ministry official, as deputy governor but his candidacy failed as it was earlier rejected by the upper house.

Watanabe is the third former finance ministry bureaucrat to be voted down by the upper house, controlled by a bloc led by the main opposition Democratic Party, which opposes allowing retired bureaucrats to take jobs at the cental bank, saying such appointments threaten its independence.

Shirakawa is the youngest BOJ governor for 50 years and the government's third candidate. The central bank's policy board now has two vacancies and there is potential for further wrangling over who should fill those posts.

Financial markets are more focused on U.S. economic problems than the BOJ leadership but analysts see Shirakawa, who won parliamentary approval last month to be deputy governor, as a realistic choice to end the three-week gap at the top of the BOJ.

There was frustration, though, that a broader policy stalemate between the government and the opposition, due to the split control of parliament's two chambers, had been allowed to spill over into decisions on the central bank leadership.

"Reaching a decision on the BOJ governor is not bad, but not being able to pick one for so long was inconceivable," said Naoki Iizuka, a senior economist at Mizuho Securities.

Shirakawa faces a delicate balancing act in his new job, with Japan's interest rates already near rock bottom at 0.5 percent but with some investors still expecting a rate cut this year.

Watanabe had won support from some opposition lawmakers because he has expertise in international finance, but was opposed by the leader of the main opposition Democratic Party, Ichiro Ozawa.

The Democrats, worried about government influence on monetary policy, decided to stick to their stance that BOJ posts should not go to former finance ministry bureaucrats.

Rejection by the opposition-controlled upper house of the government's two earlier nominees for the job had left the central bank without a permanent head for the first time in more than 80 years.