(Bloomberg) -- Japan’s ruling party members see the possibility of division within the party if Prime Minister Fumio Kishida chooses Hirohide Yamaguchi as the next Bank of Japan governor.

With the nomination of Haruhiko Kuroda’s successor likely to come next week, several Liberal Democratic Party members said there will be opposition within the party if Kishida chooses former BOJ Deputy Governor Yamaguchi. They spoke on condition of anonymity. 

The yen fluctuated against the dollar following the report, as did the benchmark index of stocks in Japan. The currency swings have been attributed to trading algorithms acting on keyword triggers, according to Asia-based FX traders.

Yamaguchi’s name has recently come up third in economist polls of likely BOJ governor candidates, after he was mentioned as a possible pick in local media. Compared to other contenders for the top job, he’s considered more hawkish.

If chosen, market participants expect the decision to cause major market volatility, and send the signal the government is seeking a clear policy shift toward normalization.

The former deputy served under ex-governor Masaaki Shirakawa, who was heavily criticized by lawmakers for appearing reluctant to ease policy. That political frustration led to support for Shinzo Abe’s critical stance against the bank, eventually enabling him to take the helm and install current Governor Kuroda and his aggressive stimulus program.   

The view among the party members won’t necessarily rule out the possibility of Yamaguchi being tapped. 

But it suggests Kishida would have to sacrifice political support within the party if he were to go ahead with that decision. Opposition may be particularly clear from the ruling party’s biggest faction, which was led by Abe until his sudden death in July. 

“The Kishida administration is built on the support of the Aso, Motegi factions and parts of the Abe faction,” said Yasunari Ueno, chief market economist at Mizuho Securities. “A loss of support from the Abe faction, which is the largest, would lead to instability within the ruling party.”

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While the government has plans for a historic hike in defense spending over the next five years and a doubling of outlays on children, members of the Abe faction — as well as the public — have been reluctant to see an increase in taxes to fund it. That might mean an increase in borrowing.

“The implications for fiscal policy are where the pain is,” said Tobias Harris, senior fellow in the Asia Program at the German Marshall Fund of the United States. “We’re at a moment where they have lots of plans to spend a lot more money and it’s not exactly a convenient time for interest rates to start rising.”

These views highlight how choosing the first new BOJ governor in a decade won’t be purely about Kishida’s personal intentions for monetary policy, the economy or financial markets.

The premier will likely consider how his choice will be perceived by his fellow party members, given his approval ratings are hovering around record lows, weakening his political capital within the LDP. 

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Kishida said Wednesday that he will carefully consider the potential impact of his choice on financial markets. Yamaguchi is seen as the most opposed to the BOJ’s extraordinary easing measures among the three leading candidates, which include current Deputy Governor Masayoshi Amamiya and his predecessor Hiroshi Nakaso. 

--With assistance from Yuki Hagiwara, Isabel Reynolds, Keiko Ujikane and Michael G. Wilson.

(Updates with details of market moves)

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