Japan PM Kan announces resignation as party head: media

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The race to pick Japan's sixth leader in five years was up in the air on Friday after media said ruling party powerbroker Ichiro Ozawa was unlikely to back former foreign minister Seiji Maehara, a security hawk who is popular with voters.

Prime Minister Naoto Kan, under fire for his response to the massive March tsunami and the radiation crisis it triggered, was expected on Friday to confirm his intention to step down, clearing the way for the ruling Democratic Party of Japan (DPJ) to pick a new leader.

Kan's successor faces a mountain of challenges, including a strong yen, rebuilding from the devastation of the March disasters, ending the radiation crisis at a crippled nuclear plant, forging a new energy policy, and curbing massive public debt while funding the bulging social security costs of a fast-ageing society.

Rifts over the role of Ozawa, a political mastermind saddled with an image as an old-style wheeler-dealer, have plagued the DPJ since it swept to power in 2009 promising change.

Whether and when to raise taxes to curb a public debt already twice the size of Japan's $5 trillion economy is a focus of debate in the leadership race, but any decision by Ozawa on whom to back is seen as likely to be decided more by his hopes of boosting his clout than by policy positions.

POWER NOT POLICIES

It was unclear whether Ozawa, who heads the DPJ's biggest group despite suspension of his party membership over a funding scandal, would back an existing candidate or try to find a new contender to support, the Yomiuri newspaper said.

There is simmering speculation Ozawa might back Finance Minister Yoshihiko Noda, the most fiscally conservative of the current contenders. Ozawa long ago proposed raising the sales tax to fund social welfare costs but in recent years has promoted populist policies to give consumers more spending power.

Most other candidates agree on the need to curb debt but are cautious about the timing of a sales tax hike and oppose higher levies for rebuilding from the March disasters.

"I've known Mr. Ozawa for 43 years and he has never acted based on policies," ruling Democratic Party of Japan (DPJ) elder Kozo Watanabe told Reuters in an interview recently.

But in a sign of how divided the ruling party has become, the Yomiuri quoted a source close to Ozawa as saying: "We definitely cannot trust Mr. Maehara."

Maehara promises to focus economic policy on promoting growth and beating deflation and is the most popular with voters among seven contenders jostling for the nation's top job.

But only DPJ lawmakers can vote in the Aug. 29 party leadership race, the winner of which becomes premier because of the party's majority in parliament's lower house.

DPJ voter support has sunk since as it struggled to implement policies in the face of internal feuds and an opposition able to block bills in the upper house.

Maehara and Noda have both floated the idea of a "grand coalition" with the main opposition Liberal Democratic Party (LDP) and its former partner, the New Komeito party to break the legislative impasse. But both parties have been cool to the idea.

Kan, who pledged in June to step down but had not specified when, was expected to confirm his intention to resign on Friday after two key bills -- one to let the government issue more debt and another to promote renewable energy -- were enacted.