* Abe to pick nominee this week, seek opposition support
* ADB's Kuroda, Ex-BOJ governor Iwata strong candidates
* Ex-finance bureaucrat Muto still in short-list for job
* ADB Kuroda leading candidate for next BOJ head - Asahi
By Leika Kihara
TOKYO, Feb 24 Former top bureaucrat Toshiro Muto
is losing some momentum in the race to become Japan's next
central bank governor, making for a more open contest, which
will kick off in full force this week following Prime Minister
Shinzo Abe's return from his U.S. trip.
Muto had been considered the leading candidate to replace
incumbent Masaaki Shirakawa, who leaves on March 19 after a
five-year term. Muto remains on the short list with strong
backing from bureaucrats at the powerful Ministry of Finance.
But evidence is building that the race may be closer than
previously thought between Muto, Asian Development Bank
President Haruhiko Kuroda and former deputy governor Kazumasa
Iwata, say officials and lawmakers familiar with the selection
Abe, who won a resounding election victory in December
promising to finally rid Japan of nearly 20 years of deflation,
wants a fresh face in the job, someone more eager to experiment
with radical measures, the sources said.
"Muto is preferred by finance ministry bureaucrats, while
people close to Abe want someone else," said one of the sources,
who spoke on condition of anonymity due to the sensitivity of
"How markets may react is also important," the source said,
adding that Abe may want to avoid disappointing markets already
pricing in a radical makeover of monetary policy under a new
Bank of Japan (BOJ) leadership. His policy prescription, dubbed
"Abenomics", has pushed the yen to its lowest level in more than
Tokyo share prices fell briefly after Reuters reported on
Feb. 15 that Muto was leading the BOJ race, as investors saw him
as a policymaker who would be more aggressive with policy than
the outgoing Skirakawa, but who would also refrain from the more
unorthodox steps advocated by some candidates.
Finance Minister Taro Aso told reporters on Friday the new
BOJ governor does not necessarily have to be someone from his
ministry, leaving room to support candidates besides Muto if Abe
insists on someone more radical.
Abe hardened his comments last week on the need for a new
governor to have international contacts as a key qualification
for the post, suggesting that he prefers someone with experience
in financial diplomacy. Muto spent most of his career in
domestic affairs, rising up the career ladder at the ministry of
finance to become its top bureaucrat.
"Japan now needs a governor who can join, communicate and
convince people in the inner circles of global finance," Abe
told parliament on Wednesday.
That would put ADB's Kuroda, who was Japan's top currency
diplomat in the midst of the Asian financial crisis in the late
1990s, at the top of the list. As president of the 67-member
ADB, which includes countries from outside of Asia, he rubs
shoulders with policymakers the world over.
Kuroda is now leading the race to become nominated by the
government as next BOJ governor, the major Japanese daily Asahi
newspaper reported on Saturday, quoting finance ministry and
senior government officials.
Indeed, Kuroda ticks many other qualifications suggested by
Abe's cabinet ministers and opposition parties, such as
experience managing a large organisation, strong English skills
and the sharing of Abe's calls for bolder monetary stimulus.
Kazumasa Iwata, a former deputy BOJ governor, also remains a
strong candidate thanks to his fluent English, academic work on
economic policy known at home and abroad, and his consistent
calls for more aggressive bond buying by the central bank.
But both of them face road-blocks in getting chosen. Kuroda
would have to cut short his job at the ADB, which could weaken
Japan's standing as the country that traditionally provides the
head of the organisation established in 1966.
Should Iwata get the top job, his repeated calls for the BOJ
to create a fund to buy foreign bonds could raise suspicions
among Japan's Group of Seven peers that Tokyo is targetting the
yen with monetary policy.
More radical candidates from the academia like Kikuo Iwata
and Takatoshi Ito, while favoured by Abe and his aides, may have
less of a chance because they lack experience managing a big
organisation -- a prerequisite set by Aso, the sources said.
The selection process for the top BOJ posts -- that of the
governor and two deputy governors -- will start in full force
later on Sunday upon Abe's return from the United States.
"The choice will have a huge impact on the current market
trend of yen weakness and share price gains. It will be made
based mainly on whether the person will pursue bold monetary
policy that the premier is seeking," Japan's top government
spokesman Yoshihide Suga told a television programme on Sunday.
Delicate political maneuvering is still needed to ensure
parliamentary approval and may mean that Abe has to settle for
someone who is not his first choice.
The prime minister is keen to avoid a rerun of the debacle
in 2008 when the seat for the BOJ governor was left open for
weeks because the main opposition Democratic Party of Japan
(DPJ) blocked the nomination of several candidates, including
Muto, in the upper house.
Support from opposition parties is vital again as Abe's
ruling Liberal Democratic Party lacks a majority in the upper
house. The chance of Muto getting the job heightens if Abe can
garner support from the biggest opposition Democratic Party of
Japan, which has signalled it would not rule out ex-bureaucrats.
But other candidates will have a better chance if Abe must
rely on support from fringe parties like Your Party, which is
opposed to ex-bureaucrats and want the governor to be a fluent
English speaker, which Muto is not.
"Abe may have already chosen his top candidate, but nobody
really knows what's on his mind. Everything will start rolling
once he's back from the United States," said another source.