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Choice of BOJ Governor Remains in Deadlock

Japan's government struggled to resolve a deadlock over a new central bank chief on Monday, just days before the current governor retires, and prospects for a breakthrough were unclear even as market turmoil took the dollar to fresh lows and battered Tokyo stocks.

Opposition parties last week rejected the government's nominee to head the Bank of Japan, current deputy governor Toshiro Muto, as successor to Toshihiko Fukui, who is due to retire on Wednesday.

Jiji news agency said the main opposition Democratic Party had been sounded out about a possible replacement but had signalled dissatisfaction, and the Nikkei business daily reported that the administration might be unable to come up with a new slate of BOJ leaders, including two deputy governors, by Monday.

Public broadcaster NHK said the government had proposed extending Fukui's term, but this had been rejected by opposition parties that control parliament's upper house, which gives them the power to veto government nominees for the post.

The showdown reflects a broader political deadlock that is undermining confidence in Prime Minister Yasuo Fukuda's administration, already suffering from sagging support rates.

The stalemate over the central bank coincides with worries about a global credit crunch and fears that the U.S. economy is already in recession, concerns that on Monday took the dollar to a record low against the euro and a 12-year low of under 97 yen.

Fears were growing that more financial institutions could become casualties in the widening U.S. financial crisis, after problems at investment bank Bear Stearns saw it sold to JPMorganChase.

Late on Sunday the Federal Reserve lowered its discount rate to 3.25 percent from 3.5 percent and said it was creating a facility to let primary dealers borrow at that rate.

Japanese share prices fell more than 3 percent on Monday while the dollar slid to 96.56 yen.

Analysts have said failure to resolve the deadlock over Fukui's successor would not have a big impact on Japanese monetary policy since the central bank already has limited wiggle room given rock-bottom interest rates.

But it adds to pressure on Fukuda, whose support rates are already slipping on doubts about his leadership.

Support for his cabinet dipped 2.2 points to 33.4 percent in a Kyodo news agency survey released on Sunday, the lowest level in a series of polls since the 71-year-old leader took office last September.

A support rate of around 30 percent is widely seen as needed to ensure a government's survival, and some analysts said Fukuda's slumping popularity could encourage members of his Liberal Democratic Party (LDP) to try to replace him.

Opposition parties' resistance to Muto as the next BOJ chief had centred on the fact that he is a former vice minister at the finance ministry, a background
that the Democrats insisted would put BOJ monetary policy independence at risk.

But Democratic Party Secretary-General Yukio Hatoyama said on Sunday that his group would not automatically rule out all career finance ministry officials.

Hatoyama told a TV programme that Haruhiko Kuroda and Hiroshi Watanabe, both former vice finance ministers for international affairs, could be good
candidates.

Kuroda, who has headed the Asian Development Bank since 2005, was Japan's top financial diplomat from 1999 to 2003. He has been an advocate of Asian
regional cooperation, calling for the creation of a common Asian currency in the long run.

Watanabe retired from the finance ministry last year and is now a special adviser at the Japan Center for International Finance, a government-linked think
tank.

Japanese media also said some LDP members wanted to nominate former Toyota Motor Corp. Chairman Hiroshi Okuda as BOJ governor.

Former BOJ official Masaaki Shirakawa has parliamentary approval to become deputy central bank governor, and could either be nominated to take the top job
or hold the post temporarily to avoid a vacancy.

The Democratic Party seems to be gaining scant applause from the public with its tough stance. Backing in the Kyodo poll for the Democrats slipped 3.5 points to 22.7 percent from last month.