Top BOJ official arrested in raid

About 75 unsmiling prosecutors, watched by dozens of journalists, trooped into the imposing central bank building in central Tokyo to scrutinise documents connected with the case.

The sight raised speculation about the future of BOJ Governor Yasuo Matsushita amid demands that he step down to take responsibility for alleged corruption.

The Tokyo Shimbun daily said prosecutors were also investigating allegations that two of Yoshizawa’s superiorsmay also have accepted restaurant meals, golf trips and other favours from commercial banks in exchange for key advance information.

It said all three were directly involved in some of the most important functions of the central bank — the BOJ’s daily money market operations which determine short-term interest rates.

Kyodo news agency said Japanese commercial banks also received advance word on key indicators such as the BOJ’s "tankan" survey of business sentiment, whose quarterly release is closely followed by financial markets as a clue to monetary policy.

The arrest and raid followed media reports that seven of Japan’s largest banks wined and dined a BOJ executive who works in a section which executes and monitors liquidity operations in the money market. The dollar rose against the yen on the news, topping 128 yen.

"Whether the BOJ governor will resign or not is a question," said a senior dealer at a trust bank. "If he does, further yen selling will emerge."

Before the raid, Governor Matsushitasaid he did not intend to step down and instead intended to supervise his bank’s own investigation into the allegations.

But market analysts said despite the disclaimers Matsushita might have to step down. "That’s the way it works in Japan. The top guy takes responsibility for the misdeeds of those below him," said Kenneth Landon, senior currency strategist at Deutsche Morgan Grenfell.