TOKYO—Japan's prime minister is expected to name a financial-policy veteran with a background in diplomacy to steer the country's central bank—betting that he will be able to navigate a politically treacherous effort to reinvigorate Japan's slack economy.
Prime Minister Shinzo Abe plans to nominate former finance-ministry official Haruhiko Kuroda, 68 years old, as the next Bank of Japan governor, according to people familiar with the matter. Mr. Kuroda, currently chief of the Asian Development Bank, ran the Japanese finance ministry's currency policy for four years in the early 2000s. There, among other things, he oversaw an extended effort to drive down the yen's value in order to make Japanese exports more affordable on the world market.
That has echoes in recent months: Japanese business and political leaders have complained that Japan's currency, trading near highs for much of last year, was choking the economy. Mr. Abe pledged upon becoming prime minister in December to appoint a new central banker who would open the monetary spigots—massively increasing the supply of yen and driving down its value.
The yen has weakened sharply this year against the dollar, the euro, and other major currencies as markets anticipated the move. After Japanese media reported Sunday night that Mr. Kuroda had been tapped, the yen weakened further: In early Asia trading Monday the dollar strengthened to a high of 94.77 yen, its highest since May 2010, and up sharply from 93.41 yen in late Friday trading in New York.
Mr. Abe's vow regarding the yen has drawn complaints from capitals around the world that he was threatening a global "currency war." The concern is that other nations would respond by cutting the value of their currencies, too, in a vicious cycle.
Earlier this month the Group of Seven and Group of 20 economies issued statements attempting to clarify appropriate behavior by central banks in influencing currency-exchange rates.
Mr. Abe's chief spokesman declined to comment early Monday morning. Mr. Kuroda, reached at a hotel in Washington, D.C., where he is attending a conference, declined to comment.
If confirmed by parliament, Mr. Kuroda would succeed Masaaki Shirakawa, who has said he would step down March 19, three weeks earlier than his five-year term was set to expire.
Mr. Kuroda has long been an open critic of the Bank of Japan, echoing Mr. Abe's own views that it has been too timid in fighting the deflation that has pinched wages and corporate profits alike for more than a decade.
In a series of interviews over the past few weeks, Mr. Kuroda made clear that if he were given the job, he would ramp up and diversify the BOJ's program of buying assets like government bonds from private banks.
Asset purchases like these are the central bank's primary tool for increasing money supply and stimulating the economy. The idea is that the purchases put more money in the hands of the banks, which they can lend to companies and households. (With Japanese interest rates already near zero, cutting rates—the traditional tool for a central bank wanting to spur the economy—isn't available to the BOJ.)
"There is plenty of room for monetary easing" in Japan, Mr. Kuroda told The Wall Street Journal in an interview in mid-February. He said he felt the central bank could go well beyond purchasing government bonds to include "corporate bonds or even stocks."
In the interview, Mr. Kuroda also said he felt that achieving the BOJ's new 2% inflation target—reluctantly adopted last month under intense pressure from Mr. Abe—"could be done" within two years. Hitting 2% inflation that quickly would mark a sudden, sharp break from years of falling prices in Japan, and from the bank's current official forecast of a 0.9% increase in the consumer price index in the fiscal year starting April 2014.
It would also be much sooner than many economists think feasible. But Mr. Kuroda said: "You cannot wait for five years, 10 years or 15 years," to hit the goal. "You have to achieve the target within a reasonably short time period."
In addition to appointing a new BOJ governor, Mr. Abe can also fill the slots for the BOJ's two deputy governors, whose terms also expire in mid-March. He has decided to fill one of those positions with Kikuo Iwata, a 70-year-old economist who has been for two decades the intellectual leader of the once-fringe group of economists attacking the BOJ. Mr. Iwata told reporters Monday morning he had been asked to serve.
For the other deputy slot, Japanese media said he is focusing on a shortlist of longtime BOJ insiders. That is viewed as a concession to the central-bank bureaucracy he has vowed to shake up, but whose support he still needs.
Mr. Kuroda's nomination would need to be approved by a divided parliament, which may not prove easy. While Mr. Abe's ruling Liberal Democratic Party controls one chamber, it lacks a majority in the other, which is dominated by a fractious collection of small opposition parties. The last time the job came open, in 2008, the opposition-controlled upper house rejected two candidates before finally approving Mr. Shirakawa.
If parliament does clear Mr. Kuroda and the two nominees for deputy governor, Mr. Abe will have put a significant stamp on the central bank. Three of the nine members on its policy board will have been chosen by him.
Of course, that doesn't guarantee they will be able to push what could prove controversial positions through a board that has largely proven loyal to the policies of Mr. Shirakawa the past few years.
Even if Mr. Kuroda were able to implement fully his policies, there is no certainty that it will successfully fix Japan's economy without structural reforms. "Most of what ails Japan cannot be fixed by monetary policy," said Anil Kashyap, a University of Chicago economist who has been vocal advocating radical change at the BOJ. "Ending deflation will be a good thing, but a whole host of other reforms are needed to get Japan moving."
Some economists, notably Mr. Shirakawa, have warned that big new purchases of government bonds by the BOJ, while easing deflation, could cause problems. Specifically, there is the worry that the purchases would be seen by investors as a pledge by the BOJ to underwrite government debt. That, in turn, could send interest rates sharply higher if investors felt the purchases took pressure off the government to be fiscally disciplined.
In a January interview with the Journal, Mr. Kuroda dismissed those concerns. "What is the danger—hyperinflation? Oh no," he said, laughing. "You're joking."
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