The retiring governor, Toshihiko Fukui, was a career official at the BoJ. As a result, the position next belonged to a former MoF official, with the appointment going to Toshiro Muto. Muto was the former vice minister of the Ministry of Finance, the highest career position in the Ministry and a position of considerable power and influence. Moreover, he served more than two years, an unusually long period of time. By all indications, he is qualified for the position.
His appointment, however, was turned down by the upper house of the Diet. The rejection had one of two possible causes. It either represented politics, a chance for the Democratic Party in the Upper House, to make a statement about the LDP in the Lower House, or represented a statement about the close relationship between the Ministry of Finance and the LDP. To the extent the latter, the Democratic Party would be unlikely to accept a nominee that came from the Ministry of Finance.
The prime minister nominated in place of Muto another former vice minister from the MoF, Koji Tanami. It meets the MoF's expectations because Tanami was, like Muto, was a former vice minister, thereby continuing the rotation at the head of the BoJ between a MoF vice minister and a BoJ staff member. On the other hand, Tanami was less likely to be offensive to the Democratic Party. He obtained the position of vice minister accidentally. Not coming from the all important Budget Bureau, he ran the far less distinguished Finance Bureau. His promotion to vice minister came not in the ordinary course but when his predecessor, Takeshi Komura, resigned to take responsibility for a scandal involving bribes taken by two banking officials who worked for the MoF. In other words, Tanami was an accidental candidate and came from bureaus that were less political and had less ties to the LDP.
His modest standing can also be seen from his post-MoF career. After retiring, Tanami descended to the Japan Bank for International Cooperation, where he served as a deputy then to governor, a term expiring this month. The JBIC is a government owned financial institution that formed from merger of the Export-Import Bank and the Overseas Economic Cooperation Fund, not a critical player in the financial markets.
The Democratic Party, however,rejected the nominee as well. This suggests that the action is less about humiliating the prime minister and more about humiliating the Ministry of Finance. Presumably the Democratic Party will not accept any candidate from the Ministry of Finance as Governor of the BoJ. While the DP can argue that this is because the MoF favors economic expansion over fighting inflation, the traditional role of the BoJ, in fact the reason is likely more political. Rejection of the two candidates sends a message that singular identification with the LDP has consequences. It suggests that as Japan develops into a multi-party state, the political involvement in, and role of, the Ministry of Finance will decline.