TOKYO - THE Japanese central bank is set to be placed in the hands of a temporary governor when the current one retires in a few hours, with the latest candidate to replace him facing rejection by parliament.

The government put forward a second former top finance ministry bureaucrat to fill the job on Tuesday but he was promptly rejected by the main opposition party, meaning he will almost certainly be vetoed in Parliament later in the day.

The unprecedented vacancy means Japan will need to appoint a temporary head to replace Bank of Japan governor Toshihiko Fukui when his term ends at midnight (11pm Singapore time), a stopgap measure that economists had said should be avoided in the middle of a credit crisis and global market turmoil.

Political analysts said they were stunned that Prime Minister Yasuo Fukuda, having seen one former top finance ministry official vetoed in Parliament's opposition-controlled upper house, then nominated someone with the same credentials.

The government put forward Mr Koji Tanami, the head of a state-funded lending agency who was once vice-minister of finance, the ministry's top bureaucratic position.

The same rank was once held by the first nominee, Mr Toshiro Muto, who opposition parties rejected last week.

While Mr Muto, currently deputy BOJ governor, was rejected for his close ties to the government, the main opposition Democratic Party questioned the experience of Tanami to head the BOJ.

'We have doubts about whether he can do the job as he is not an expert on international financial problems,' Democrats' secretary-general Yukio Hatoyama told reporters.

'We have to be very careful about the selection because the BOJ governor has a responsibility to protect people's livelihoods.'

Stopgap governor
The rejection has brought the government back to square one in its search for a new Bank of Japan leader, with a deputy governor likely to take over once Mr Fukui steps down.

'The lack of policies of Prime Minister Fukuda and the irresponsibility of Democratic Party leader (Ichiro) Ozawa have given birth to an outrageous directionless drama in which the people are ignored,' the Nikkei business daily said in an editorial.

'If Tanami is not approved, Deputy Governor Masaaki Shirakawa will become acting governor, but the loss of confidence in Japan among the international community will be immeasurable. And the Fukuda administration will suffer a big blow.'

Parliament has already approved Mr Shirakawa as deputy, and the Democrats said they would vote for a second deputy governor, current BOJ board member Kiyohiko Nishimura, in Parliament on Wednesday.

One small opposition party broke ranks and said it would vote for Mr Tanami, but its four lawmakers would not be enough to swing the balance in the upper house.

Japan has a system to appoint a temporary governor but this will be the first time it has had to do so since at least World War II, reflecting political paralysis in a Parliament split between an overwhelming majority for the ruling coalition in the lower house, while opposition parties control the upper house.

Economic storms gather Underlying the succession crisis is a rapidly weakening US economy, which prompted the Fed to slash interest rates by 0.75 percentage point on Tuesday, with Wall Street expecting more to come.

Conditions are also worsening in Japan, where the Reuters Tankan, a monthly survey of business sentiment, hit a four year low among manufacturers.

'As the the Fed is likely to cut rates further and the yen could come under upward pressure, the Bank of Japan may need to cut rates to provide further accommodative conditions,' said Mr Tatsushi Shikano, a senior economist at Mitsubishi UFJ Securities.

'As some in the market doubt if the BOJ could take such swift action if its top post is left vacant, a new governor must be decided as soon as possible in view of uncertainties over the economic outlook.'

The big Fed rate cut sent the dollar soaring to its biggest one-day rise against the yen in nine years, taking it back close to 100 yen from a 13-year low below 96 yen seen on Monday.

Japanese stocks jumped 2.6 per cent after the Fed cut sent Wall Street stocks to their biggest one-day gain in five years.

Mr Fukuda, already under fire from voters over a broad paralysis in policy-making, defended his choice for governor.

'Tanami is knowledgeable about both international finance and the domestic economy. He's perfect in terms of both character and insight,' Mr Fukuda told reporters.

Political analysts said the saga would further dent Mr Fukuda's already sagging public support and might lead to calls to dump him. But a new leader would face the same divided parliament.

Underlying the succession row is a traditional rotation of the job of heading the BOJ between career central bankers and former finance ministry officials.

As Mr Fukui is a career central banker, the government may see it as the turn of a former ministry bureaucrat - despite the misgivings of opposition lawmakers that such a leader would threaten the BOJ's independence from the government. -- REUTERS