The daughter of President John F. Kennedy and a scion of America's most enduring political dynasty, the post has traditionally gone to political heavyweights.
According to the New York Times, Kennedy's nomination has been rumored for months and is seen as President Obama rewarding another important campaign supporter with a plum embassy.
Kennedy's support of his candidacy in 2008 — along with that of her uncle, Senator Edward Kennedy of Massachusetts — elevated Obama's status at a crucial moment in the race against his rival Hillary Rodham Clinton.
It reportedly gave Kennedy lasting ties to Obama, a diplomatically significant boost to Japan where officials have been buzzing about what a Kennedy in Tokyo would mean for Japan's standing in the United States.
Kennedy, 55, is a lawyer and an author who has served as director for numerous nonprofit organizations. She has no experience of working in government and reportedly has no special expertise in Japan, however.
Sources have said her lack of knowledge is outweighed by her connections to the Oval Office.
'For those who say she doesn’t know a lot about Japan, I say sure, but neither did Walter Mondale,' Kurt M. Campbell, a former assistant secretary of state for East Asian affairs, told the New York Times.
'What you really want in an ambassador is someone who can get the president of the United States on the phone,' Campbell said. 'I can’t think of anybody in the United States who could do that more quickly than Caroline Kennedy.'
Her stature should assuage Japan’s worries that in Washington, Tokyo takes a back seat to Beijing, Campbell said.
In a statement on Wednesday, the Japanese Foreign Ministry welcomed the nomination, noting that 'Caroline Kennedy has the deep confidence of President Obama' and that her choice reflected 'the great importance the Obama administration attaches to the Japan-U.S. alliance.'
Historians have noted that her father played a crucial role as president in repairing the alliance between Japan and the United States.