By Linda Sieg
TOKYO (Reuters) - Finance Minister Naoto Kan, a fiscal conservative once best known for battling bureaucrats, looked set to become Japan's next premier on Friday, in a ruling party vote head of an election next month.
Kan, 63, would become Japan's fifth prime minister in three years, taking the helm as the country struggles to rein in a huge public debt, engineer growth in an ageing society, and manage ties with security ally Washington and a rising China.
The Democratic Party of Japan (DPJ) will vote later in the day on a successor to unpopular Prime Minister Yukio Hatoyama, who quit this week to improve his party's chances in an upper house poll the ruling bloc needs to win to avoid policy deadlock.
The wealthy Hatoyama, his voter ratings in tatters, resigned on Wednesday just eight months after the Democrats swept to power pledging to cut waste, wrest control of policy from bureaucrats, and give consumers more cash to stimulate domestic demand.
His abrupt departure has raised concerns among investors that the government will delay efforts to thrash out plans, due out this month, to cut a public debt that is already twice the size of Japan's GDP and to craft a strategy for sustainable growth.
Japanese media said Kan appeared to have the votes to defeat Shinji Tarutoko, 50, a little known lawmaker who had won backing from some supporters of party powerbroker Ichiro Ozawa.
"I want this leadership election to be a fresh start to create vigorous Japan and I would like to take the lead," a fired-up Kan told his backers ahead of the party vote, to cheers, applause and shouts of 'Fight, fight, fight'."
Ozawa, seen as pulling the strings in Hatoyama's government, also quit his key post as party secretary-general this week in an effort to improve the party's image, tarnished by funding scandals that embroiled Ozawa, Hatoyama and other lawmakers.
Kan, a former health minister who got his start in politics as a grassroots activist, has forged an image as a fiscal conservative and occasional central bank critic since assuming the finance post in January.
If he becomes premier, that could spell bolder steps would be taken to rein in the huge public debt, although he would face opposition from many in his party ahead of the election.
NO SILVER SPOON
Financial markets will also be watching the new leader's comments on currencies.
"Kan's chances appear strong and his appearance of being in favour of a weaker yen is being viewed positively by the stock market. For the Nikkei to move much over 10,000, we need currencies to move towards a weaker yen," said Kenichi Hirano, operating officer at Tachibana Securities.
Kan, a former DPJ leader and hardly a fresh face, has made clear he wants to sideline the 68-year-old Ozawa, whose image as an old-style wheeler dealer has undermined the Democrats' pitch as purveyors of change.
But while the wily Ozawa may withdraw into the shadows, sceptics question whether his influence will entirely fade. That matters because Ozawa, known as a master campaign strategist, is reluctant to promise bold fiscal reform steps such as raising Japan's 5 percent sales tax ahead of the upper house poll.
Kan has been among the few cabinet ministers to urge early debate on the sales tax, a rise in which economists say is needed to fund the growing social welfare costs of a greying population.
The new party leader, to be voted in as premier by parliament later in the day, is assured the premiership by virtue of the Democrats' huge majority in parliament's powerful lower house.
The new leader had been expected to form a new cabinet later the same day, but NHK public TV said Kan had expressed a desire to take more time and might wait until early next week.
The Democrats swept to power in a historic election last year and will run the government whatever the outcome of the July upper house poll, but the ruling bloc needs to win a majority in that chamber to ensure that legislation is enacted smoothly.
Media surveys showed Hatoyama's resignation had given the party a boost. In an Asahi newspaper poll, 28 percent of voters said they planned to cast their ballots for the Democrats against 20 percent for the opposition Liberal Democratic Party (LDP), ousted last year after more than 50 years of almost non-stop rule. That compared to 20 percent for the DPJ in previous survey.
Japan's new leader will face a tough task keeping ties with the United States on track, since a deal clinched by Hatoyama with Washington to shift a U.S. airbase to the southern Japan island of Okinawa is staunchly opposed by local residents.
Unlike his recent predecessors as premier, Kan does not hail from a political dynasty, a point likely to appeal to voters weary of leaders born with silver spoons in their mouths.
He got his start in politics as a grassroots student activist, later joining small political parties before helping to found the then-opposition Democratic Party in 1996.
Known for his short temper, he became Japan's most popular politician for a time when as health minister in 1996 he forced bureaucrats to expose a scandal over HIV-tainted blood products.
(Reporting by Linda Sieg; Editing by Edwina Gibbs)
