BOJ's Muto still favourite to succeed Fukui

TOKYO, Aug 14 (Reuters) Deputy Bank of Japan Governor Toshiro Muto looks to be the favourite candidate to take over from BOJ Governor Toshihiko Fukui when his term ends next March.

The chairman of a major commercial bank and a government economic adviser have also been mooted as possible replacements for Fukui, but analysts say Muto is still the front-runner even though the main opposition party once branded him unfit to be a central banker.

After thumping the ruling Liberal Democratic party in elections last month, the opposition Democratic Party's support will be essential in selecting the next head of the BOJ, as both houses must approve the appointment.

''There's still a good chance the government will persuade the Democrats that Muto is the best candidate considering his experience as a board member,'' said Mitsuru Saito, chief economist at Tokai Tokyo Securities.

Muto, who joined the central bank in 2003 as deputy governor, had been widely seen as heir apparent to Fukui, but the Democrats' landslide victory in upper house elections in July has changed all that.

As the Democrats now outnumber the ruling coalition in the upper house, the government will need to field a candidate who satisfies both sides.

''It'll be quite tough to find somebody who can win support from both the ruling bloc and the opposition parties,'' Saito of Tokai Tokyo Securities said.

The names floating around among analysts and media include Takatoshi Ito, a member of the government's top economic advisory council, and Shigemitsu Miki, the chairman of Bank of Tokyo-Mitsubishi UFJ.

But many analysts say a BOJ governor should ideally already have experience on the central bank's policy board.

''A BOJ governor needs extensive knowledge of finance and markets. It's a bit different from corporate executives,'' said Seiya Nakajima, chief economist at Itochu Corp.

Among those who have served on the BOJ board in the past, many analysts cite Kazuo Ueda, economics professor at the University of Tokyo, as a possible candidate.

Ueda, who was the youngest board member when the BOJ introduced its current policy board system in 1998, is still relatively young and also seen as a well-balanced monetary policy expert.

Yutaka Yamaguchi, a BOJ deputy governor from 1998 to 2003 and a career central banker, may be another candidate given his expertise in monetary policy.

The Democratic Party's shadow economy minister told Reuters last week the party has not reached a consensus yet on who should succeed Fukui. [ID:nT74626] The ruling coalition bloc, on the other hand, seems too busy with its own personnel issues as Prime Minister Shinzo Abe plans to reshuffle his cabinet late this month to shore up flagging support for the government, analysts say.

After the cabinet reshuffle, the debate on the next BOJ governor is likely to gain momentum, and analysts say the government will probably make a decision by the end of the year.

By then the Democrats -- an amalgam of former Socialists, ex-ruling party lawmakers and younger conservatives -- may have softened their stance on Muto, some analysts said.

In 2003, they opposed the government's appointment of Fukui and those of Muto and Kazumasa Iwata as deputy governors, partly because they were angry that the three were not called to parliament for a hearing beforehand.

They also said that Muto, as a former Finance Ministry bureaucrat, was not suitable from the viewpoint of safeguarding the central bank's independence from the government.

But a top DPJ member said last week, albeit in a roundabout fashion, that the party had not ruled Muto out as a possible central bank chief.

''It is not necessarily the case that we couldn't conclude that he is OK,'' the party's Secretary General Yukio Hatoyama told Reuters.

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