Forex

TOKYO- Japan's government hinted Thursday it might find a new candidate for Bank of Japan chief to break a stalemate that has sparked concern of a rudderless central bank amid the global credit crisis.

Signs that the government may be willing to compromise came just hours after the lower house of parliament voted for Toshiro Muto as the next BoJ governor, squaring off with the opposition-controlled upper house which already rejected him.

'It is possible,' chief government spokesman Nobutaka Machimura told reporters when asked if the ruling coalition would nominate someone else.

He said the ruling Liberal Democratic Party (LDP) and opposition have been talking 'so that we can finish the whole process by Wednesday,' when the position becomes vacant.

But tension remained high between the two parties. The feud comes as fresh worries about the US economy drove the dollar below the 100 yen mark for the first time since 1995. Share prices in Tokyo also slumped to a two-and-a-half year low.

Prime Minister Yasuo Fukuda, who nominated Muto last week, indicated that he was keeping his options open.

'We still have time until the weekend. I will hear opinions of various people,' he told reporters.

The opposition says that Muto, a former finance ministry bureaucrat and current number two at the Bank of Japan, is too close to the government to ensure the central bank's independence.

However, Fukuda and other ruling party lawmakers have previously said they believe Muto is the best candidate and that the opposition is trying to make political gains out of the row.

'They are opposing him only because he is from the finance ministry. It's very unfortunate,' Machimura said, adding that it was up to Fukuda whether to consider other candidates.

The lower house, where the government enjoys a majority, went ahead Thursday and approved Muto. Machimura earlier said it was possible that the government would resubmit his nomination.

Japan's parliament has seen gridlock since the opposition last year won control of the upper house in a landmark defeat for the LDP, which has ruled the country almost continuously since 1955.

'Interesting fiasco'

The parliamentary affairs chiefs from the LDP and opposition Democratic Party of Japan (DPJ) met to discuss ways to explore a compromise.

The ruling party agreed to submit a new proposal on Monday, said Kenji Yamaoka, parliamentary affairs chief from the DPJ.

He expects the government to submit new names, saying: 'Of course. They said a 'new' proposal.'

Markets are nervous that the central bank of the world's second-largest economy will be run by a caretaker governor after outgoing chief Toshihiko Fukui's five-year term ends on March 19.

The lower house also approved the nomination of Takatoshi Ito, a professor and economic advisor to Prime Minister Yasuo Fukuda, and Masaaki Shirakawa, a professor and former BoJ executive director, as the two deputy governors.

In practice, however, only Shirakawa can take up his post because the upper house backed only him and not Ito. If the leadership row is not resolved in time, it seems likely that Shirakawa would become the temporary governor.

'It is a bit of a fiasco, obviously. But it is a very interesting fiasco,' said Noriko Hama, professor at the Doshisha Business School in Kyoto.

She said that an empty chair could be a blessing in disguise for the Bank of Japan, which will have to show its own effectiveness at a time of crisis.

'That will help to focus the mind and really get the BoJ to prove itself as being competent and able to handle this kind of crisis situation,' she said.

'We are seeing all turmoil coming to the surface. It is, in a sense, a breath of fresh air.'