* Talk of friction between PM and finance minister
* They favour different candidates for top BOJ job - sources
* Selection process now likely next week
* Abe visits United States Feb 21-24
By Shinji Kitamura
TOKYO, Feb 19 (Reuters) - Japan's government has delayed nominating a Bank of Japan governor by a week, fanning talk of friction between the prime minister and the finance minister over who should run a central bank charged with taking bold action to reignite the economy.
Prime Minister Shinzo Abe has demanded aggressive action from a new governor due to be appointed by end-March, prompting expectations he would favour a candidate willing to carry out radical policies to lift Japan out of years of deflation.
However, Finance Minister Taro Aso and others in Abe's ruling party are looking for a more moderate candidate, according to sources close to the selection process. Some government officials are concerned that a governor promoting radical policies could upset financial markets.
"There's probably some disagreement between Aso and Abe," said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management.
Abe had declared on Monday he would make an announcement "soon" and the sources close to the selection process had said they expected the premier to make a nomination early this week.
However, Economics Minister Akira Amari said on Tuesday the government would not nominate a governor and the deputy governors until after Abe returns from a trip to the United States on February 21-24.
"After Prime Minister Shinzo Abe returns, we will lay the ground work to reach an agreement with opposition parties within this month," Amari told a news conference after a cabinet meeting. Parliament must approve the government's nomination, including the upper house where Abe lacks a majority.
The delay is also partly because of a parliamentary rule, set by ruling and opposition parties five years ago, that once the name of a nominee is leaked to the media the candidate will be automatically disqualified.
The rule means it is difficult to float names among different political groups to try to build a consensus.
Abe's ruling party is negotiating with opposition parties to scrap the rule, lawmakers and officials with knowledge of the selection process said. But it is taking more time than expected as some lawmakers of the biggest opposition group, the Democratic Party of Japan (DPJ), want to keep the rule in place.
Abe led the Liberal Democratic Party (LDP) back to power in December with promises of aggressive monetary and fiscal stimulus to lift an economy that has stagnated for years. Japan is currently in its fourth recession since 2000.
His demands have caused the yen to slump more than 15 percent against the dollar since November, sparking worries of competitive currency devaluations. The Nikkei average has rallied by more than 30 percent over the same period on hopes the weaker currency would bolster exporters' earnings.
The prime minister reiterated on Monday that he wanted the new BOJ governor to pursue bold monetary easing. The candidate will replace Masaaki Shirakawa, who is retiring at the end of a five-year term.
Abe's push for looser monetary policy prompted the central bank in January to take its boldest action to date, doubling its inflation target to 2 percent and agreeing to an "open ended" asset-buying programme from 2014.
Sources familiar with the selection process say Abe's short list for BOJ governor includes Haruhiko Kuroda, Japan's former currency tsar who now heads the Asian Development Bank, and Kazumasa Iwata, a former government economist and deputy BOJ governor.
Kuroda has been a vocal critic of policies under Shirakawa, while Iwata has repeatedly called for the BOJ to consider buying foreign bonds to curb yen strength, a measure that Abe has also said should be an option.
The sources say the leading candidate however is Toshiro Muto, a former top finance ministry bureaucrat and deputy BOJ governor. Analysts say Muto would promote more aggressive policies than Shirakawa, but refrain from the more radical measures advocated by some other candidates.
"I get the sense that Aso wants Toshiro Muto and that Abe prefers Kazumasa Iwata. Then there's the matter of dealing with opposition parties. Either one or the other will be appointed BOJ governor," said Muto, the senior economist at Sumitomo Mitsui Asset Management.
"There could be some disappointment because at this point the only way to surprise investors is by taking unconventional policy steps."
Abe needs the support of both houses of parliament for his nomination. In the upper house he would need votes of the opposition DPJ, or a combination of votes from other smaller parties.
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