Japan needs a faster "third arrow" growth strategy focusing on promoting a carbon-neutral society, including the creation of a financial hub in Tokyo for Asian firms aiming to go green, said Hiroshi Nakaso, considered a front-runner to be the country's next central bank chief.

Massive monetary and fiscal stimulus deployed in 2013 as the first two "arrows" of then-premier Shinzo Abe's "Abenomics" policies reflated the economy. But the third, structural reform, barely took flight, failing to boost a potential growth rate stuck below 1%.

Steps to encourage capital spending on green projects would help lift Japan's potential growth rate and serve as an upgraded growth strategy, said Nakaso, a former deputy governor of the Bank of Japan (BOJ).