Japan's government is likely to nominate Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive monetary easing, as its next central bank governor, sources told Reuters on Monday.
Prime Minister Shinzo Abe is also seen filling one of two deputy governor posts with Kikuo Iwata, an academic critical of Bank of Japan policy and an advocate of unorthodox monetary easing steps, the Nikkei newspaper reported.
The yen fell to a 33-month low and yields on five-year government bonds hit a record low as markets moved to factor in a more aggressive monetary policy, a key plank in the prime minister's economic vision, dubbed by media as Abenomics.
"Kuroda is a fan of a weaker yen and of deflation bashing," said Kit Juckes, a strategist at Societe Generale in London.
Abe won a resounding election victory in December promising to finally rid Japan of nearly 20 years of deflation. He has said wants to BOJ governor keener to experiment with radical steps to revive the economy.
Kuroda has long criticised the BOJ as too slow in expanding stimulus, so he would be expected to push the central bank into more radical efforts to achieve a 2 percent inflation target set in January.
"Kuroda's nomination won't change the course that has been dictated by Abe in recent months - that is aggressive monetary policy, but perhaps thanks to the inclusion of Iwata the market will expect more eye-catching bold easing measures," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
The government will submit this week its nominations for the governor and two deputy governor posts. The names must be approved by both houses of parliament, which means Abe will need opposition support because he lacks a majority in the upper house. The incumbents leave March 19.
In a further sign of support for Kuroda, Japan's Jiji news agency quoted an unidentified executive member of the main opposition party, the Democratic Party of Japan (DPJ), saying he met its criteria for a BOJ chief so he would be hard to oppose.
If approved, the nominations will increase the chance that the BOJ will ease monetary policy again on April 3-4, the first rate review under the new leadership, say sources familiar with the central bank's thinking. The BOJ might adopt measures that go beyond its existing asset-buying program, they said.
"Monetary easing is pretty much a given. The question is what specifically the BOJ will do," said one source, who spoke on condition of anonymity due to the sensitivity of the matter.
Kuroda, 68, has been considered a strong candidate to replace current BOJ Governor Masaaki Shirakawa because of his extensive experience in international policy and his calls for more aggressive monetary easing that matched the views of Abe.
As Japan's top financial diplomat from 1999 to 2003, he aggressively intervened in the exchange-rate market to weaken the yen to support the country's export-reliant economy, a sign he will be keen to keep any sharp yen rises in check.
The other deputy governor post will probably be filled by a central banker, most likely BOJ Executive Director Hiroshi Nakaso, who now oversees the central bank's international operations, the Nikkei said without citing sources.
The yen has weakened nearly 20 percent against the dollar since November, when Abe began calling for bolder monetary easing. On Monday, it fell 1.4 percent to 94.67 per dollar and Japan's five-year government bond yield hit a record low.
The cheaper yen has helped improve profits at Japanese exporters, notably carmakers like Mazda Motors, which raised its operating profit outlook for the year ending in March by 80 percent.
But it has also sparked international concern the fall could prompt competitive currency devaluations as many countries are struggling for growth and to reduce debt following the global financial crisis.
Shirakawa's last rate review will be on March 6-7. The BOJ meets twice in April, once on April 3-4 and then on April 26.
Kuroda has called for the BOJ to achieve its 2 percent inflation target in two years by pumping money into the economy through unorthodox steps, such as expanding government bond purchases and buying shares.
He has ruled out foreign bond buying as a policy option, which suggests that any new measures the BOJ might take under Kuroda will likely include buying longer-dated Japanese government bonds or more purchases of private debt.
Abe has stressed the need for the new governor to have international contacts, suggesting he prefers someone with experience in financial diplomacy, like Kuroda who, as president of the 67-member ADB rubs shoulders with policymakers around the world.
Still, if Kuroda were chosen as next BOJ governor, he would be cutting short his term as head of the ADB, which could weaken Japan's standing as the country that traditionally provides the head of an organisation established in 1966.
The premier has the power to choose the government's nominee for BOJ governor, although he usually respects the views of the finance minister and the ministry's bureaucrats because they work closely with the central bank on economic policy.
The finance ministry, which wields a great deal of influence over monetary policy, lobbied for former financial bureaucrat Toshiro Muto, but was likely turned down by Abe and his aides who saw him as lacking international contacts and less willing to experiment with untried monetary easing steps.