Opposition parties, which can veto nominees to succeed Governor Toshihiko Fukui, rejected last week the government's pick to replace him, Deputy Governor Toshiro Muto.

Japanese media said the opposition had also rejected on Monday a suggestion to extend Fukui's tenure beyond Wednesday.

Chief Cabinet Secretary Nobutaka Machimura said report that was inaccurate, without specifying how it was wrong.

'We are making every effort to make a proposal,' he told reporters.

The showdown reflects a broader political deadlock that is undermining confidence in Prime Minister Yasuo Fukuda's administration, already suffering from sagging support rates.

The stalemate also coincides with a global credit crunch and fears that the US economy is already in recession, concerns that took the dollar below 96 yen to a 13-year low on Monday, and to record lows against the euro Fears were growing that more financial institutions could become casualties in the widening crisis, after problems at investment bank Bear Stearns led to its sale to JPMorgan Chase.

Late on Sunday the Federal Reserve lowered its discount rate to 3.25 per cent from 3.5 per cent and said it was creating a facility to let primary dealers borrow at that rate.

Japanese shares fell more than 4 per cent while the dollar hit 95.77 yen, down 3 per cent and heading for potentially its biggest one-day fall in a decade.

BOJ distracted?
Analysts said the deadlock over Fukui's successor would not have a big impact on monetary policy, since Japan already has interest rates near rock bottom, but the confusion would complicate efforts to coordinate global monetary policy.

'We're in a situation where some kind of joint action by central banks may be needed - such as a joint intervention in the currency market, perhaps - but the policy people are busy with this mess,' said Takahiko Murai, general manager of equities at Nozomi Securities.

Opposition to Mr Muto as the next BOJ chief centred on the fact that he is a former senior bureaucrat at the finance ministry, a background that lawmakers in the main opposition Democratic Party insisted would put Monetary policy independence at risk.

But Democratic Party Secretary-General Yukio Hatoyama said on Sunday that his group would not automatically rule out all career finance ministry officials.

Haruhiko Kuroda and Hiroshi Watanabe, both former vice finance ministers for international affairs, could be good candidates, Mr Hatoyama told a TV programme.

Mr Kuroda, who has headed the Asian Development Bank since 2005, was Japan's top financial diplomat from 1999 to 2003. He has been an advocate of Asian regional cooperation, calling for the creation of a common Asian currency in the long run.

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

Japanese media also said some LDP members wanted to nominate former Toyota Motor Corp. Chairman Hiroshi Okuda as BOJ governor.

Another option could be for former BOJ official Masaaki Shirakawa to run the central bank, at least temporarily.

Picked by the government to be a deputy governor, he was the only BOJ nominee to win parliamentary approval last week.

Poilitical pressure
The Democratic Party and smaller allies control parliament's upper house, which gives them the power to veto government nominees for the BOJ as well as delay laws.

The resulting paralysis adds to pressure on Fukuda, whose support is already slipping on doubts about his leadership.

Support for his cabinet dipped 2.2 points to 33.4 per cent in a Kyodo news agency survey, the lowest level in this series of polls since the 71-year-old took office last September.

A support rate of around 30 per cent is widely seen as needed to ensure a government's survival, and some analysts said Mr Fukuda's slumping popularity could encourage members of his Liberal Democratic Party (LDP) to try to replace him.

The Democratic Party seems to be gaining scant applause from the public with its tough stance. Backing in the Kyodo poll for the Democrats slipped 3.5 points to 22.7 per cent from last month. -- REUTERS