Nikkei falls 2.1 pct, hit by news Muto is leading candidate for BOJ chief

TOKYO, Feb 15 (Reuters) - Japan's Nikkei share average extended losses on Friday afternoon on news that a conservative, former finance ministry bureaucrat is the leading candidate to head the central bank. Sources close to the matter told Reuters that Japanese Prime Minister Shinzo Abe is close to selecting his nominee for governor of the Bank of Japan, and that Toshiro Muto is the leading candidate for the top job in a honed down list of names.

Muto is seen as a conservative reformer, and thus may be less likely to embark on more radical policy easing which markets have been expecting from the BOJ as policymakers try to reflate the economy. The Nikkei was down 2.1 percent at 11,071.73 points in mid-afternoon trade, compared to the midday close of 11,207.93. The Topix dropped 2.4 percent to 931.77. "Muto is considered that he would only follow traditional ways such as expanding asset purchase programs. It would merely be an 'enhanced version of the conventional way'," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "Investors see that it would be difficult to meet the (BOJ's) 2 percent inflation target without drastic easing. We cannot picture Muto going bold like buying foreign funds which could accelerate the yen's weakness." Other market analysts agreed. "It soured the mood, and some started dumping futures contracts," said Hiroichi Nishi, an assistant general manager at SMBC Nikko Securities.