Japan's government put forward acting central bank governor Masaaki Shirakawa on Monday to head the Bank of Japan permanently, finally finding a candidate the veto-wielding opposition is likely to back after weeks of deadlock.
The government, scrambling to resolve a row that has left the central bank without a permanent head for the first time in 80 years, wants a new governor in place in time for a G7 meeting on Friday in Washington that will study ways to calm turbulent global markets amid fears of a U.S. recession.
"Shirakawa is the only person who is experienced enough to speak as a BOJ governor at this week's G7 meeting. It is the most realistic option," said Masamichi Adachi, a senior economist at JPMorgan Securities.
But while the government's third attempt to pick a governor is likely to be approved in parliament, with lawmakers from the main opposition Democratic Party expressing support, it may face a fight over its latest candidate for deputy governor.
The government nominated former finance ministry bureaucrat Hiroshi Watanabe for deputy despite opposition concern about such officials serving at the BOJ.
"I made the decision based on his character. He is appropriate given his ability, experience and personality, which are impeccable," Fukuda said of his decision to nominate Watanabe.
The nomination of Shirakawa, a career central banker, comes just before a two-day BOJ policy meeting starting on Tuesday.
The central bank is not expected to cut Japan's already very low rates but the outcome will be watched closely for any sign the central bank has become more pessimistic about the economy.
The showdown over the BOJ appointments reflects a broader political impasse that is undermining confidence in Prime Minister Yasuo Fukuda, who is already suffering public doubts about his leadership that have cut his support rates to 24 percent, a poll by the Mainichi newspaper showed.
The Other Crisis
Financial markets have been more focused on the U.S. problems and the global credit crisis, rather than problems at the BOJ, but analysts say Japan needs to send a permanent governor to the G7 meeting because a stand-in would likely be unable to commit to long-term decisions in talks with other central bankers.
"Shirakawa will likely be accepted by market participants. Nominating him seems like a natural course of events. He is experienced and appears to have an unwavering policy stance," said Koji Ochiai, a senior market analyst at Mizuho Securities. "As Shirakawa is a career central banker, he is probably a hawk whether or not he openly accepts this labeling," he said.
Opposition parties, which control parliament's upper house and can thus veto nominees to head the BOJ, rejected the government's two previous candidates because they spent much of their careers in the finance ministry, a connection the lawmakers said would threaten the BOJ's independence on monetary policy.
Parliament is set to quiz the two nominees on Tuesday, ahead of a vote likely on Wednesday -- leaving just enough time for Shirakawa to catch a flight to Washington.
Helping Shirakawa's case is that he has already won parliamentary backing as a deputy governor last month.
Shirakawa himself has shrugged off labels such as hawk or dove, saying only that his views are not that different from those of the BOJ before his appointment as deputy governor.
Investors are pricing in around a 20 percent chance of a BOJ rate cut by June and a 50 percent chance of a cut by the end of the year, but most economists, noting that the BOJ's main policy rate is near rock bottom at 0.5 percent, see no change in rates for the foreseeable future.
Opposition lawmakers say appointing former finance officials would threaten the independence of the central bank, although some analysts say Watanabe's expertise as a former bureaucrat would be valuable.
"Market participants know that monetary and fiscal policies are inseparable and view a former finance ministry official as a natural choice," Ochiai said, adding that rejection of Watanabe could be a sign of higher rates to come, as the finance ministry's view would be less likely to be reflected at the BOJ.
At the centre of the row is resistance by the Democratic Party to the custom of alternating top BOJ posts between central bankers and finance ministry bureaucrats.
They view that as part of a system called "amakudari", or descent from heaven, whereby bureaucrats parachute into cushy jobs after retiring. Democrat leader Ichiro Ozawa has said an amakudari appointment would be seen as undesirable by many in his party although a senior lawmaker from his party, Yoshito Sengoku, said rejection of Watanabe was not a given.
"Generally speaking, we cannot reject a candidate automatically just because the person is a former finance ministry bureaucrat," he told reporters.