Prime Minister Yasuo Fukuda's government nominated Bank of Japan deputy governor Toshiro Muto to take the helm of the central bank and steer Asia's largest economy through the global credit crisis.

Threat of financial crisis
A feud between Japan's two largest political parties has raised fears in financial markets of a vacancy at the top of the central bank when current governor Toshihiko Fukui steps down in less than two weeks.

The government has insisted that will not happen, although the resurgent opposition has yet to say whether it will approve Mr Muto.

'We cannot allow a vacancy when the Japanese economy is unstable,' Finance Minister Fukushiro Nukaga told reporters.

The main opposition Democratic Party of Japan (DPJ), which controls the upper house of parliament, has been critical of Muto as a candidate because of his background as a former top finance ministry bureaucrat.

But in financial markets he is seen as a safe pair of hands to pilot the world's number two economy through an economic downturn and possible recession.

'The DPJ is being bullheaded, trying to take over the administration, but they should avoid causing further anxiety for already shaky markets,' said Tokai Tokyo Securities analyst Makoto Sengoku.

'If they refuse the government's nominations, they will probably face a backlash from the public,' he added.

Along with Mr Muto, the government proposed former BoJ executive director Masaaki Shirakawa and University of Tokyo professor Takatoshi Ito for the two posts of deputy governor, ruling party lawmaker Takashi Sasagawa told reporters.

The candidates face parliamentary hearings on Tuesday, followed by further deliberation by lawmakers.

'Obviously, we will name candidates who we think are the best choices,' Chief Cabinet Secretary Nobutaka Machimura told reporters earlier.

'Through the hearings and discussions, I hope and I am sure that the parties will reach the conclusion that the nominees are the best choices,' he said.

Unlikely change: experts
Analysts said that Mr Muto would be unlikely to bring a significant change to the leadership of the central bank, although he appears somewhat less eager than Mr Fukui to raise the country's super-low interest rates.

'Mr Muto has a neutral view on monetary policy with a little bit of dovish inclination,' said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.

The BoJ left interest rates on hold at 0.5 per cent on Friday at its final policy meeting under Mr Fukui, who oversaw the end to the unprecedented era of free credit but was forced to shelve plans to return rates to more normal levels.

His retirement has been overshadowed by the row over his successor, who must be approved by the both lower and upper houses of parliament.

Opposition lawmakers have voiced concerns that Muto's background as a former finance ministry official could damage the central bank's independence from the government, which in the past has put pressure on the BoJ not to hike rates.

'We question (the ruling party's) decision to dare to propose Mr Muto, knowing full well the situation of our party,' the DPJ's parliamentary affairs chief Kenji Yamaoka told reporters.

Relations between the two main parties have been severely strained by a string of disputes culminating in the ruling coalition ramming a state budget through the lower house last week.

But at the same time the opposition appears wary of leaving itself open to accusations that it caused a leadership vacuum at the BoJ.

'The LDP has ignored the apparent DPJ hostility to Muto, seemingly calculating that it is a win-win situation,' noted Macquarie Securities economist Richard Jerram.

'Either the DPJ accepts the LDP's favoured candidate or they risk being labelled as irresponsible and unfit to govern if they block Muto and leave the BoJ without a governor for some period.' -- AFP