The Tokyo prosecutor sent his investigators into the hitherto untouchable Ministry of Finance and the Bank of Japan to ferret out corruption.
To put a ceiling on the yen, say at 90 yen per dollar, the Ministry of Finance or the Bank of Japan would pledge unlimited yen selling as Switzerland pledged with the franc.
FORBES: For Japan To Emerge From Its Malaise, It Must Place A Ceiling On The Yen
For one, the regulator for American housing lenders, the Federal Savings and Loan Insurance Corporation, was widely felt to be part of the problem, much as Japan's finance ministry now bears the onus for the collapse of institutions that it regulates.
Japan's Ministry of Finance said this week that it had no intention of driving down the yen by buying American Treasury bonds.
He recently told the press that Sakakibara Eisuke, former vice minister for international affairs at Japan's Ministry of Finance, would make a "splendid" candidate.
It would be able to borrow money, with a government guarantee, either from the Bank of Japan or from the finance ministry's trust-fund bureau, which manages postal-savings money.
Muto is still a strong contender, according to people familiar with the situation, and is thought to be the preferred candidate of Japan's powerful finance ministry, where he spent 37 years before joining the BoJ in 2003.
Interestingly, the yen has strengthened at a time of increased speculation that the Bank of Japan (BOJ) will finally purchase government bonds directly from the Ministry of Finance, effectively monetizing mounting domestic debt, a move caused by numerous unsuccessful stimulus measures and falling tax revenue.
Betsy Daniels, an analyst at Morgan Stanley, argues that the clean-up job should be given to the Bank of Japan, which, unlike the finance ministry, still has some degree of credibility.
As one sign that foreign investors are cooling to Japan's markets, the finance ministry reported Thursday a sharp drop in purchases of Japanese stocks by overseas investors.
Wisely, the Bank of Japan responded by supplying liquidity to the banking system but both it and the finance ministry also did something much less wise.
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