Japan's Bank chief to be rejected

The nomination may be rejected by either house of parliament, and an opposition-led bloc currently controls the upper house.

The opposition said that as a former deputy finance minister, Mr Muto was too close to the government.

The current governor, Toshihiko Fukui, will retire on 19 March.

Bank independence

The announcement of plans to veto the appointment followed parliamentary hearings which questioned Mr Muto and the two nominees in line for the deputy governorships.

"Mr Muto is the finance ministry itself, and [his nomination] fails to ensure the independence of the BOJ. This was the agreed opinion," said Yukio Hatoyama, secretary general of the Democratic Party of Japan.

A formal vote on the three candidates is expected to take place later in the week.

A temporary governor may have to be appointed if a new one has not been agreed by the time Mr Fukui steps down.

'Behind the curve'

However, given current concerns about the state of the Japanese economy, markets will be worried if there is not a permanent governor in place, analysts said.

"With heightening concerns about a deepening US economic slowdown, market participants will be faced with another concern that the BOJ's moves could fall behind the curve," said Takeshi Minami from Norinchukin Research Institute.

The opposition also plans to reject the nomination for one of the deputy governorships - the academic Takatoshi Ito - but will accept the other nominee, Masaaki Shirakawa.

That would make Mr Shirakawa the front-runner to be acting governor if no permanent appointment can be made before 19 March.

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