(Reuters)
Updated: 2008-03-18 09:45

TOKYO - The government is set to put forward its second candidate for Bank of Japan governor on Tuesday, hoping to end a prolonged political row over a new central bank chief at a time of global market mayhem.

However, it was unclear if the new nominee would be accepted by opposition lawmakers who have the power to veto the government's choice, with just one day to go until current governor Toshihiko Fukui retires.

Opposition parties last week rejected Toshiro Muto, the government's first choice to replace him, raising concern about a monetary policy vacuum at a time when coordination among global central banks is needed to overcome market turmoil.

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"We don't want to create any policy vacuum," Chief Cabinet Secretary Nobutaka Machimura, the top government spokesman, told a news conference.

"At a time of severe global market conditions, we would like to put forward excellent candidates for governor and deputy governor who can fully take responsibility as a member of a leading economic power," he said.

The name of the new nominee for governor was expected to be given to lawmakers at a closed-door meeting at 11 a.m. (0200 GMT), with the nominee appearing at parliamentary hearings later in the day.

Machimura said the government had not informed the main opposition Democratic Party of its choice. As he spoke, lawmakers were hastily meeting in parliament, including parliamentary affairs chiefs of the ruling Liberal Democratic Party and the Democrats.

If no new governor is in place by March 19, the government would have the option of installing Deputy Governor Massaki Shirakawa, who won parliamentary approval last week, as temporary governor.

It could also extend the term of Fukui while considering long-term options, although analysts and others have called for a permanent leader at the central bank as it works with others around the world to combat the global credit crisis.

Deadlock over Fukui's successor would not have a big impact on monetary policy, however, since Japan's interest rates are near rock bottom, analysts say.

The credit crunch and fears of a US recession briefly drove the dollar below 96 yen to a 13-year low on Monday and hit Japanese shares hard.

Japanese stocks made up a little lost ground on Tuesday, gaining 1.3 percent, while the dollar held around 97 yen.

Machimura declined comment on who the candidates might be.

Among possibilities are Haruhiko Kuroda and Hiroshi Watanabe, both former vice finance ministers for international affairs, both of whom a senior opposition lawmaker said on a weekend TV show could be good candidates.

Kuroda, who has headed the Asian Development Bank since 2005, was Japan's top financial diplomat from 1999 to 2003. When prices persistently fell in Japan several years ago, Kuroda repeatedly called on the BOJ to do more to stem deflation.

Watanabe retired from the finance ministry last year and is now an adviser at a government-linked think tank.