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March 18 (Bloomberg) -- Japanese Prime Minister Yasuo Fukuda nominated former Finance Ministry official Koji Tanami as central bank governor, setting a collision course with the opposition who rejected his first choice for being too close to the government.
The Democratic Party of Japan is ``disappointed'' by Tanami's nomination and will have difficulty approving him, said Jun Azumi, deputy chief of the party's parliamentary affairs committee. The party last week rejected Toshiro Muto, who formerly was the Finance Ministry's top bureaucrat.
The latest round in the standoff between the LDP and DPJ raises the prospect the world's second-largest economy will be without a central bank chief when Toshihiko Fukui's term ends tomorrow. A bank vacancy would come as global stock markets plunge and the yen trades at a 12-year high.
``If the DPJ approves this nomination, they would let themselves fall into a political trap because they have argued monetary policy and fiscal policy must be separated,'' said Yasunari Ueno, chief market economist at Mizuho Securities in Tokyo. ``An approval would make the DPJ look like they don't seriously care about the principal issue.''
The opposition controls the upper house and can block central bank governor nominations.
Kiyohiko Nishimura was proposed for deputy governor, according to an upper house statement. Nishimura, 54, has been a member of the bank's policy board since April 2005, according to its Web site.
Finance Ministry Background
Tanami, 68, joined the Finance Ministry in 1964 and served as the top bureaucrat from 1998 to 1999.
At the ministry, Tanami held positions in the bond issuance and tax departments. Unlike Muto he never ran the budget department.
``The ruling party's argument is probably that Tanami isn't a mainstream finance ministry bureaucrat, while Muto is,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``But such a distinction would mean little to the general public.''
Nishimura, 54, has been a Bank of Japan board member since 2005 and is a former professor of economics at the University of Tokyo and an economist at the Cabinet Office. In December 2006 he prompted a bond market drop when he said the Bank of Japan could take policy action even if the market wasn't prepared for it.
``Although the fundamental rule is not to surprise, sometimes small surprises are necessary,'' Nishimura said, causing the yield on the five-year government note to jump 3 basis points. The bank waited until February to raise its overnight borrowing rate to 0.5 percent from 0.25 percent.
To contact the reporter on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net