By Leika Kihara and Yuko Yoshikawa
TOKYO (Reuters) - Japan's government is likely to nominate Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive monetary easing, as its next central bank governor, sources told Reuters on Monday.
Prime Minister Shinzo Abe is also seen filling one of two deputy governor posts with Kikuo Iwata, an academic critical of Bank of Japan policy and an advocate of unorthodox monetary easing steps, the Nikkei newspaper reported.
The yen sank 1.4 percent in early trade to 94.67 against the dollar on expectations the reported nominees will steer the central bank toward bolder monetary stimulus measures.
"Kuroda's nomination won't change the course that has been dictated by Abe in recent months - that is aggressive monetary policy, but perhaps thanks to the inclusion of Iwata the market will expect more eye-catching bold easing measures," said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
The government will submit its nominations for the governor and two deputy governor posts to parliament this week. The incumbents leave on March 19.
Kuroda, 68, has been considered a strong candidate to replace current BOJ Governor Masaaki Shirakawa because of his extensive experience in international policy and his calls for more aggressive monetary easing that matched the views of Abe.
The choice of Kuroda, who has long criticized the BOJ as too slow in expanding stimulus, will likely nudge the central bank into more aggressive, unorthodox measures to achieve its new 2 percent inflation target set in January.
As Japan's top financial diplomat from 1999 to 2003, Kuroda aggressively intervened in the exchange-rate market to weaken the yen to support the country's export-reliant economy.
Iwata, one of the most vocal advocates of aggressive monetary expansion, is likely to be nominated as deputy BOJ governor, the Nikkei said on Monday without citing sources.
The other deputy governor post will probably be filled by a central banker, most likely BOJ Executive Director Hiroshi Nakaso, who now oversees the central bank's international operations, the paper said.
Still, it remains uncertain whether Kuroda will get the job.
Abe must go through political maneuvering to close the deal, as the nomination must be approved by both houses of parliament including the upper house, where his ruling coalition lacks a majority.
The government hopes to garner support from either the main opposition Democratic Party of Japan (DPJ) or a group of smaller parties to pass the nomination.
Kuroda has also called on the central bank to achieve 2 percent inflation in two years by pumping money into the economy through unorthodox steps, such as expanding government bond purchases and buying shares.
If Kuroda were to be chosen as next BOJ governor, he would be cutting short his term as head of the ADB, which could weaken Japan's standing as the country that traditionally provides the head of an organization established in 1966.
Abe, who won a resounding election victory in December promising to finally rid Japan of nearly 20 years of deflation, has said he wants to choose a new BOJ governor keener to experiment with radical steps to revive the economy than the conventional-minded Shirakawa.
He has also stressed the need for the new governor to have international contacts, suggesting he prefers someone with experience in financial diplomacy like Kuroda who, as president of the 67-member ADB rubs shoulders with policymakers around the world.
The finance ministry, which wields a great deal of influence over monetary policy, lobbied for former financial bureaucrat Toshiro Muto, but was likely turned down by Abe and his aides who saw him as lacking international contacts and less willing to experiment with untried monetary easing steps.
Abe has the power to choose the government's nominee for BOJ governor, although the premier usually respects the views of the finance minister and the ministry's bureaucrats because they work closely with the central bank in economic policymaking.
(Additional reporting by Antoni Slodkowski; Editing by Dean Yates)
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