TOKYO (Reuters) - Japan's government, racing to find a new Bank of Japan head before a G7 finance meeting next week, will likely seek to retain acting Governor Masaaki Shirakawa in the post, Japanese media reported, as the main opposition party hinted it could accept such a compromise.
By Hideyuki Sano and Linda Sieg
TOKYO (Reuters) - Japan's government, racing to find a new Bank of Japan head before a G7 finance meeting next week, will likely seek to retain acting Governor Masaaki Shirakawa in the post, Japanese media reported, as the main opposition party hinted it could accept such a compromise.
A senior opposition lawmaker described Shirakawa as capable, a much more positive response than the party gave to two previous government nominees who were vetoed in parliament, leaving the central bank without a permanent head for the first time in 80 years.
"It's almost certain that Shirakawa will become the governor," said Takeo Okuhara, senior bond strategist at Daiwa Institute of Research.
!ADVERTISEMENT!"The government has run out of candidates. It has also run out of time. Apart from him, it's hard to find a person who will be accepted in parliament."
Prime Minister Yasuo Fukuda is under pressure to find a replacement for former governor Toshihiko Fukui, who retired two weeks ago.
A third veto of a candidate by parliament's upper house, which opposition parties control, would be a harsh blow for the 71-year-old, who is already struggling to keep his job as his popularity sags on doubts about his ability to resolve policy deadlocks in parliament.
The Nikkei business daily said the government would probably tap Shirakawa, a former career central banker, for the governor's post and nominate Hiroshi Watanabe, a former vice finance minister for international affairs, as deputy governor.
Yukio Hatoyama, the secretary general of the main opposition Democratic Party, said he thought Shirakawa could be a good candidate, but added the party had not yet received a proposal.
"I think he is capable of the job. But I also have to add that as a party we haven't made any conclusion," Hatoyama said.
A senior ruling party lawmaker said the plan was to present nominees to parliament on Monday, and Japanese media said informal sounding out of candidates had taken place.
G7 LOOMS
With central banks working together to stabilize volatile markets, an analyst warned that G7 leaders would not take the words of a stand-in governor seriously, when they meet next Friday in Washington.
Japanese and Euro zone finance ministers want the G7 to seek a curb on excessive exchange-rate movements, amid growing concern over the economic effects of a sliding U.S. dollar that they fear are making firms in their countries less competitive.
The BOJ holds its next rate review at a two-day meeting starting Tuesday, at which it is not expected to move rates, although investors are pricing in around a 20 percent chance of a rate cut by June <JPONIBOJ=TRDT> and a 55 percent chance of a rate cut by the end of the year.
However economists, eyeing Japan's already low rates of 0.5 percent, say a central bank run by Shirakawa may be less inclined to cut interest rates than investors think.
"Unless the Japanese economy slows sharply, Shirakawa will not be keen to cut rates," said Seiji Adachi, a senior economist at Deutsche Securities.
Shirakawa himself has shrugged off any label of hawk or dove, saying only that his views were not that different to those of the BOJ before his appointment as deputy governor. <ID:nT326535>
The vacuum at the top of the BOJ comes amid coordinated central bank action to settle gyrating financial markets, and as U.S. Federal Reserve Chairman Ben Bernanke has conceded for the first time that the U.S. economy may slip into recession.
The Fed has slashed U.S. interest rates by 3 percentage points since mid-September with markets expecting another cut this month. <FEDWATCH>
BUREAUCRAT WAR
While both sides in Japan's parliament had vowed to avoid a vacancy when Fukui retired, a long-running argument over the influence of finance ministry bureaucrats derailed earlier nominations.
Democrats, who would be keen to have a general election, rejected the previous two nominees on grounds that their past senior roles in the finance ministry would threaten the BOJ's independence in monetary policy.
Some analysts questioned whether Watanabe, as a former bureaucrat, would win approval from the Democratic Party, but Hatoyama said the party was not necessarily against having a former finance ministry official as a deputy governor.
The gridlock in parliament has also prevented the extension of a controversial gasoline tax that expired on March 31, pleasing consumers as petrol prices fall by up to 25 yen (24 cents) per liter but threatening to leave a big hole in government revenues.
The arguments have taken their toll on support for Fukuda, raising speculation he may be dumped as prime minister.
A survey by Fuji TV released on Friday put Fukuda's support rate at a slender 23.8 percent, well below the 30 percent level seen by analysts as necessary for his government to survive. <ID:nT27026>
($1=102.44 yen)
(Additional reporting by Edwina Gibbs and Chisa Fujioka; Editing by Rodney Joyce)
