Japan PM has edge in party race but outcome uncertain

TOKYO (Reuters) - Japanese Prime Minister Naoto Kan has a slight edge over powerbroker Ichiro Ozawa ahead of a party leadership vote next week, NHK public TV said on Friday, but with many party lawmakers undecided the outcome is too close to call.

Whoever wins the September 14 vote faces the mammoth task of trying to keep a deeply split Democratic Party of Japan (DPJ) from unravelling while struggling with a strong yen, a fragile recovery, massive public debt and a divided parliament that threatens more policy deadlock.

Markets are bracing for a shift towards a more stimulative fiscal policy if Ozawa wins the September 14 vote. But whether the 68-year-old political strategist, his future clouded by a funding scandal, could survive an opposition attack is unclear.

NHK said Kan, who took office just three months ago as Japan's fifth premier in three years, was neck and neck with Ozawa among the DPJ's 411 members of parliament with about 50 still undecided, while the prime minister was leading among local lawmakers and party rank-and-file, whose votes carry less weight.

Whoever wins the party vote is expected to become prime minister by virtue of the DPJ's majority in parliament's powerful lower house, the legacy of a huge election victory that swept the party to power for the first time last year.

"Both camps are making every effort to win support from the approximately 50 undecided MPs through their debate (later on Friday) and individual lobbying," NHK said.

Kan has vowed to cap new bond issuance for the fiscal year from next April at this year's level of around 44 trillion yen (340.5 billion pounds) to rein in public debt, which at about twice the size of the $5 trillion economy is the worst among developed countries.

Ozawa, once a protege of Kakuei Tanaka, a former premier and the architect of Japan's postwar political regime of pork-barrel, party factions and vested interests, has said he would consider issuing new debt to fund stimulus steps if the economy worsens.

(Reporting by Linda Sieg and Yoko Nishikawa; Editing by Michael Watson)