Muto leads as Japan PM close to choosing nominee for BOJ chief

TOKYO (REUTERS) - Former top financial bureaucrat Toshiro Muto is the leading candidate to become Japan's next central bank governor with Prime Minister Shinzo Abe to pick a nominee as early as this week, sources close to the process told Reuters.

The choice of Mr Muto, 69, would suggest the Bank of Japan (BOJ) will intensify stimulus efforts to reflate the economy, which has struggled with deflation for years, but refrain from the more radical measures advocated by other candidates.

Some policymakers and government officials worry that radical measures could unsettle markets.

A sharp yen decline since Mr Abe started pushing for bold BOJ measures has already sparked global criticism of Japan's policies.

"The choice of Muto appears to be gaining momentum," said one of the sources familiar with the selection process.

Still, Mr Muto's selection is not a done deal, given the political manoeuvring needed to ensure parliamentary approval.

Mr Abe and his advisers have cut the field of final candidates to two or three and have excluded academic and private-sector economists in favour of those with bureaucratic experience, said several people familiar with the process. They declined to be identified because the decision is still pending and discussions remain private.

Mr Muto has long been considered a leading candidate to replace Mr Masaaki Shirakawa, 63, who steps down with his two deputies on March 19.

Mr Muto has close ties with ruling party lawmakers and past experience steering fiscal and monetary policies, having moved up the ranks of the powerful finance ministry and serving as deputy BOJ governor between 2003 and 2008.

"Muto is considered as someone who would only follow the traditional approach such as expanding the BOJ's asset buying programme. It would merely be an 'enhanced' version of the conventional approach," said Mr Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "We cannot picture Muto going bold like buying foreign funds, a move that could accelerate yen declines."

Mr Abe, who led his party back to power in December with promises of aggressive monetary and fiscal stimulus, has said he wanted the new BOJ governor to pursue bold monetary easing. That gave rise to the view he may choose dark-horse candidates from academia who have advocated unorthodox policy measures, such as economics professor Kikuo Iwata.

The prime minister's short-list also includes Asian Development Bank head Haruhiko Kuroda, Japan's former currency tsar, and Mr Kazumasa Iwata, a former government economist who served as deputy BOJ governor alongside Muto.