Japan's Aso leads race for next prime minister | Reuters

Reuters

By Chisa Fujioka

TOKYO (Reuters) - Former foreign minister Taro Aso leads the race to become Japanese prime minister, analysts and media said on Tuesday, after unpopular Yasuo Fukuda became the second leader to abruptly resign in less than a year.

With a policy vacuum threatening an economy teetering on the brink of recession, 67-year-old Aso said he was a suitable candidate to head the country.

If he wins the leadership in what would be his fourth attempt, the former Olympic sharpshooter and comic-book fan will be Japan's 11th prime minister in 15 years.



"I think (Fukuda) felt he had work that was left undone, and he said he wanted it to be carried out," Aso told a news conference, ahead of a leadership vote in three weeks.

"As someone who discussed these issues with him, including the economic package, I think I have the credentials to take that on," said the veteran lawmaker, currently LDP secretary-general.

Japan's Nikkkei share average fell 1.8 percent on foreign nervousness that a second Japanese leader seemed to have just given up the job. Government bond futures jumped, despite analysts warning an Aso government might seek to spend Japan's way out of its economic woes.

Fukuda, 72, had been struggling to cope with a divided parliament where opposition parties have the power to delay legislation, and his sudden exit raised questions about his conservative party's ability to cling to power or even hold together after ruling Japan for most of the past 53 years.

He produced an economic package last week, with a promise of tax cuts and $16.5 billion in new spending this year to help ease the pain of high oil and food prices, but only saw his government's ratings slide further.

ASO POPULAR

Aso is seen as the LDP's best bet to rebuild voter support. However, some analysts note the same was said when he lost to Fukuda in the LDP's last leadership race last year, when previous prime minister Shinzo Abe also suddenly quit.

The departure of Fukuda, a moderate conservative who favors close ties with Japan's Asian neighbors, does not automatically mean an early election as the LDP dominates parliament's lower house, which will vote on the leadership.

However, the next prime minister might go to the polls ahead of a deadline of September next year to take advantage of any recovery in public support.

A complete deadlock in parliament, where the opposition controls the upper house and can stall legislation, could also force the prime minister to call an election reluctantly.

The ruling coalition is almost certain to lose seats, if not its majority, in an election but voters say they want a turn to pick their government.

"As two LDP prime ministers resigned in a row, I think it is necessary to call a general election within this year," said Chika Hasegawa, 45, a patent agency employee.

"The LDP is now in tatters, why not let the Democratic Party take charge and see how it goes."

If the LDP passes over the outspoken Aso again, other potential leadership contenders are Economics Minister Kaoru Yosano, known for his commitment to fixing Japan's tattered finances, and conservative Yuriko Koike, who was briefly last year the country's first female defense minister.

Popular female lawmaker Seiko Noda, 47 and currently the minister in charge of consumer affairs, has also been mentioned as a possible fresh face at the top.

Analysts said the next LDP prime minister would face similar woes to Fukuda, given the parliamentary deadlock and the party's rusting political machine and scandal-tainted image.

While they initially shrugged off the now familiar scenario of no national leader, market analysts said Japan's stock and bond markets would likely sag after Fukuda's departure, as it raised doubts over policy paralysis and may spur debt-funded spending.

Japan's economy shrank in the second quarter and is widely seen as heading for a recession, prompting Aso to suggest delaying efforts to ease the government's sky-high debt -- the highest in the OECD -- and seek instead to stimulate the economy.

That would likely mean issuing more government debt to pay for new spending, putting pressure on bond yields.

One political scenario has the two big parties fraying or even collapsing. Talk of a broad realignment has been simmering since the opposition took control of the upper house last year, but it remains to be seem if early moves pick up steam.

(Additional reporting by Linda Sieg and Naoto Okamura; Editing by Rodney Joyce)