'Abenomics' Picks Up Speed With Kuroda Nomination

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Haruhiko Kuroda

Japan's government on Thursday nominated Haruhiko Kuroda, an advocate of aggressive monetary easing, as the next Bank of Japan (BOJ) governor in a move that could see radical central bank policies push the economy out of a rut.

Kuroda, currently the head of the Asian Development Bank, would replace Masaaki Shirakawa, who steps down as BOJ chief on March 18.

Japan's government also nominated BOJ official Hiroshi Nakaso and economics professor Kikuo Iwata, who is also a proponent of aggressive monetary policy, to the two deputy governor posts at the central bank.

Analysts said that Kuroda and Iwata joining the Bank of Japan would mark an important step in "Abenomics" – the phrase now used widely to describe the economic policies of Japan's Prime Minister Shinzo Abe.

(Read More: Markets Just Can't Get Enough of the Abe Trade)

"The point is that the Bank of Japan is a failed central bank – it has failed to deliver price stability," said Shane Oliver, head of investment strategy at AMP Capital. "Kuroda's nomination should mark the next phase of monetary policy. He is known to be a dove so we should see a pick-up in asset purchases."

Since November, just before elections in December that bought the ruling Liberal Democratic Party (LDP) to power, Abe has pushed for bold measures and an aggressive monetary policy to revive the Japanese economy, which is in recession and plagued by years of deflation.

In January, the BOJ bowed to pressure and adopted a 2 percent inflation target and promised to carry out unlimited asset purchases to kick start the economy.

"There is a sea-change taking place in Japan and that started with the elections in December and Abe's commitment to fight deflation," said Oliver. "Japan is the world's third largest economy and suddenly it's taking steps to end the malaise it's been in for the last 20 years – that has got to be good for the global economy."

It is the promise of "Abenomics" that has seen the yen shed about 15 percent of its value against the dollar since November and Japanese shares surge to their highest level in more than four years.

(Read More: Will the Yen Find a Floor at 95?)

Kuroda has said the BOJ should pump money into the economy via asset purchases in order to reflate the economy.

"Who will support Mr Kuroda will be very critical because Kuroda has an economics degree, but he is not necessarily an expert on monetary policy. Mr Iwata, one of the deputy governor nominees, is going to be the leading opinion leader on reflation policies," Takuji Okubo, principal & chief economist at Japan Macro Advisors told CNBC.

Stamp of Approval

All three candidates are expected to testify to Japan's parliament in the days ahead. Both the lower and upper houses will then vote on the nominations.

While approval is not a given since the ruling coalition government led by Abe's LDP does not have a majority in the upper house of parliament, most analysts do not foresee any problems given signs this week that main opposition parties will not block the nominations.

Japan's Jiji news agency on Monday quoted a senior member of the main opposition party, the Democratic Party of Japan, saying Kuroda met its criteria for BOJ Governor so he would be hard to oppose.

"With the largest opposition party already indicating that they will agree to the appointments, it is almost certain that Kuroda as well as the other two nominees will become BOJ executives," Okubo said.

Bob Baur, chief global economist at Principal Global investors in Tokyo said that a yen trading in a range of 95-100 to the dollar would be positive for Japan's economy.

(Read More: More Proof of Japan's Pickup- Industrial Output Rises)

"The difficult task for the BOJ is breaking the deflationary mentality that exists in Japan," he said on CNBC Asia's "Cash Flow." "Kuroda has a big job on his hands. The BOJ will have to do something soon - Abe is pushing hard for it."

After news of the nomination, the yen was largely steady around 92.35 per dollar, while Japanese shares held onto their gains.

- By CNBC.Com's Dhara Ranasinghe, follow her on twitter @DharaCNBC