April 4 (Bloomberg) -- Masaaki Shirakawa probably will become Bank of Japan governor after an opposition official said he's qualified for the job, ending political gridlock that left the position unfilled for the first time in 80 years.

Deputy Governor Shirakawa is ``fully capable'' of heading the institution, Democratic Party of Japan Secretary General Yukio Hatoyama said in Tokyo today. The ruling Liberal Democratic Party approached the DPJ today about whether it would accept Shirakawa, Nikkei English News reported.

Filling the vacancy would provide respite to Prime Minister Yasuo Fukuda, whose popularity plunged after the opposition rejected his two previous candidates. The appointment of Shirakawa, who has been acting chief since Toshihiko Fukui's term expired on March 19, may come in time for the governor to attend next week's Group of Seven meeting in Washington.

``It looks like Shirakawa will be the player to end this political game,'' said Masamichi Adachi, senior economist at JPMorgan Securities Japan Co. in Tokyo and a former central bank official. ``The LDP and the DPJ probably think we were embarrassed enough in the global community and we don't need a double disgrace at the G-7.''

The DPJ last month used its control of the upper house to veto Toshiro Muto and Koji Tanami, saying their backgrounds at the Finance Ministry compromised the central bank's independence. Shirakawa, 58, was appointed deputy governor last month. He worked at the central bank for 34 years before leaving to teach economics at Kyoto University in 2006.

Difficult to Reject

``Because the party supported him as deputy governor it would be difficult to reject him as governor,'' Hatoyama said.

As a BOJ executive director, Shirakawa supervised policy when the bank stopped injecting extra cash into the economy to overcome deflation, known as quantitative easing, and raised the overnight borrowing rate from near zero two years ago.

Stalemate in parliament over the appointment and a gasoline tax caused Fukuda's approval rating to drop to 28 percent this week, below that of predecessor Shinzo Abe before he resigned six months ago, a Yomiuri newspaper survey showed yesterday.

``This would be the easiest appointment for the DPJ to agree with,'' said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Plc in Tokyo and a former BOJ official. ``It would be a good way to settle the political gridlock.''

A six-person parliamentary committee will meet April 7 at 12:40 p.m. to receive the government's nomination, said Kunji Akiya, director of the Upper House Committee on Rules and Administration.

Watanabe for Deputy

The LDP told the DPJ it plans to nominate Hiroshi Watanabe, a former top currency official at the Finance Ministry, to replace Shirakawa as deputy, Nikkei said. Watanabe, an adviser to the Japan Center for International Finance, a state-run think tank, started a job teaching economics at Hitotsubashi University in Tokyo this week.

Shirakawa will have to steer policy as the economy slows and inflation climbs to the fastest in a decade. Since becoming deputy, he has said the central bank is ready to take flexible action if necessary because the outlook for the economy is becoming more uncertain -- language analysts say indicates a willingness to reduce borrowing costs.

Traders see a 55 percent chance the bank will cut the key rate from 0.5 percent, already the lowest among major economies, by December, according to JPMorgan Chase & Co. calculations.

At the same time, Shirakawa has said Japan's monetary conditions are ``very accommodative,'' suggesting the cost of borrowing is cheap and funds are sufficient to stimulate growth.

Shirakawa has a master's degree in economics from the University of Chicago and worked at the central bank's New York office between 1994 and 1995.

To contact the reporters of this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net; Keiichi Yamamura in Tokyo at kyamamura@bloomberg.net

Last Updated: April 4, 2008 05:11 EDT