Prime Minister Fumio Kishida plans to tap former Bank of Japan Policy Board member Kazuo Ueda as the central bank's next governor to succeed incumbent Haruhiko Kuroda, a source familiar with the matter said Friday, in a surprise to jittery financial markets.

Former Financial Services Agency chief Ryozo Himino and BOJ Executive Director Shinichi Uchida are being eyed as new deputy governors, according to the source, amid growing speculation that the Japanese central bank will shift away from its easy monetary policy as global peers have already done.

The government is expected to present the nominees to parliament next Tuesday, seeking approval from both chambers before they are formally appointed.

If approved, Ueda will be the first governor hailing from academia in postwar Japan and will assume the post on April 9. The deputy governors' term will start on March 20.

Kazuo Ueda speaks to reporters in Tokyo on Feb. 10, 2023. (Kyodo)

Ueda, 71, will be tasked with navigating the BOJ through what could be a tumultuous period of phasing out its monetary stimulus, which has been in place under Kuroda to achieve its 2 percent inflation target.

The news of Ueda's expected nomination sent the yen sharply higher against the U.S. dollar and pushed up the yield on 10-year Japanese government bonds to the recently-set 0.5 percent limit, as some analysts expect the BOJ to become less dovish.

The premier's selection has been closely watched as it could lead to a departure from the "Abenomics" economy-booster program that entailed the BOJ's powerful monetary easing.

If approved, the new BOJ leadership will include theorist Ueda, the internationally-minded Himino, and practitioner Uchida who is well-versed in the policy framework implemented under the current governor.

After the news of his potential nomination broke, Ueda told reporters he had "nothing to say" about the report. Still, he said the BOJ's current monetary policy is "appropriate" and that monetary easing should continue for now.

"I'm a scholar myself, so I think it's important to make logical judgments and explain in an easy-to-understand way," he said.

One of the leading monetary policy experts in Japan, Ueda taught at the University of Tokyo and served as a member of the BOJ's decision-making body between 1998 and 2005, when Japan was battling deflation. He has been a professor at Kyoritsu Women's University since 2017.

Based on Ueda's expertise and contributions, the BOJ introduced its zero interest rate policy in 1999 and embarked on quantitative easing in 2001.

With financial markets fixated on who the premier's choice would be, Kishida said earlier this week that the next governor should have strong communication and coordination skills.

Incumbent Bank of Japan Gov. Haruhiko Kuroda (L) and Kazuo Ueda (R) attend a symposium on May 20, 2016, in Sendai, Miyagi Prefecture. Ueda, former BOJ Policy Board member, is being eyed as the central bank's next governor, a source familiar with the matter said Feb. 10, 2023. (Kyodo) ==Kyodo

Masayoshi Amamiya, along with former Deputy BOJ Governor Hiroshi Nakaso, was among those who financial markets viewed as strong candidates to succeed Kuroda.

It is customary for a former BOJ or Finance Ministry official to take the helm of the central bank. Ueda is neither, which would make him the first BOJ chief since Makoto Usami of the former Mitsubishi Bank, who served in the post between 1964 and 1969.

In recent times, U.S. Treasury Secretary Janet Yellen, hailing from academia, served as chair of the Federal Reserve.

BOJ watchers said the selection of Ueda came as a surprise, with some expecting that the current yield curve control program, blamed for distorting the bond market with its aggressive purchases, will be scrapped.

"If Mr. Ueda becomes governor...the BOJ will make its policy flexible and normalize it gradually. But the challenges facing him are too many," said former BOJ board member Takahide Kiuchi, now executive economist at Nomura Research Institute.

Approval by the House of Representatives and the House of Councillors is required for the government to formally appoint a new governor and two new deputy governors for their five-year terms.

Parliamentary hearings will be arranged, likely on Feb. 24, for the nominees to explain their policy stances and answer questions from lawmakers.

Himino, 62, was secretary general of the Basel Committee on Banking Supervision of the Bank of International Settlements before serving as commissioner of the Financial Services Agency between 2020 and 2021. People who know him describe him as a "genius."

The other nominee for deputy governor, Uchida, became the youngest director general of the BOJ's monetary affairs department in May 2012 at 49. Uchida, now 60, is known for his quick execution skills that a senior BOJ official compared to a "computer."

Financial markets have been rife with speculation that the BOJ will shift to a tighter monetary policy under a new governor, a decade after powerful monetary easing was undertaken during Kuroda's tenure beginning in 2013.

The BOJ's swollen balance sheet following massive purchases of government bonds and exchange-traded funds has already raised alarm bells among critics who urge the central bank to better address the side effects of protracted monetary easing.

In December, the BOJ decided to allow the benchmark 10-year yield to move more widely than before in an attempt to fix market distortions.

Financial markets took the step as an effective interest rate hike despite the BOJ's retention of a yield curve control program to keep both short- and long-term interest rates at rock-bottom levels.

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