Japan's Maehara likely to run for PM: media (Reuters)

TOKYO (Reuters) – Former Foreign Minister Seiji Maehara, who has called beating deflation a top priority, is likely to throw his hat into the ring to become Japan's next prime minister, media said on Monday, clouding the prospects of the fiscally conservative finance minister.

Unpopular Prime Minister Naoto Kan is expected this week to confirm his intention to resign, clearing the way for Japan to select its sixth prime minister since Junichiro Koizumi ended a rare five-year term in 2006.

Japan's new leader must grapple with a resurgent yen, push ahead with efforts to rebuild from the March earthquake and tsunami and end a radiation crisis at the crippled Fukushima nuclear plant -- all while figuring out how to curb a huge public debt and cure the ills of a fast-aging society.

"Foreign Minister Maehara has begun final coordination in preparation to run," the Jiji news agency reported, quoting unidentified party sources.

Finance Minister Yoshihiko Noda, a 54-year-old fiscal hawk, had hoped to win the backing of Maehara -- the most popular potential candidate among voters in recent polls -- in his push to replace Kan, a once-fiery civic activist whose approval ratings have slipped well below 20 percent since he took office in 2010.

"This changes the dynamic completely, although it doesn't give you the answer to who will win," Chuo University political science professor Steven Reed said of Maehara's expected decision to run in the Democratic Party (DPJ) leadership race.

At least five other DPJ lawmakers are eyeing a run at the nation's top job in the ruling party race, set for August 29 after the expected passage of two key bills now before parliament.

The new party leader becomes prime minister by virtue of the DPJ's majority in parliament's powerful lower house.

Whether and when to raise taxes to pay for rebuilding from the March disaster and to fund the bulging social security costs of a fast-aging society will be a focus of the party race, although even Noda has been toning down his stance of favoring raising taxes soon.

Maehara, a former DPJ leader who, like Noda, has expressed concern about giant rival China's military buildup, topped the list of voters' preferred candidates in a Kyodo news agency survey, with 28 percent against a mere 4.8 percent for Noda.

But political analysts said Maehara's popularity was no guarantee that he would win the DPJ race, in which only DPJ members of parliament and not rank-and-file members take part.

POWERBROKER OZAWA IN SHADOWS

Unless Noda, whose DPJ support base overlaps that of Maehara, 49, bows out of the race, low-profile Agriculture Minister Michihiko Kano, 69, could have a better chance of winning, not least because he may gain backing from party power broker Ichiro Ozawa and his ally, former premier Yukio Hatoyama.

Kano's lack of a clear policy stance on key issues also makes it easier to get support from various quarters inside the Democratic Party, which, like its main rival the Liberal Democrats, is split over economic and foreign policy matters.

"Because Kano lacks policies, he doesn't have enemies," DPJ elder Kozo Watanabe told Reuters in an interview on Friday.

Ozawa, a former party leader who some credit with engineering the Democrats' sweep to power in 2009, cannot himself run because his DPJ membership was suspended after he was indicted on suspicion of misreporting political donations.

"Ozawa and Hatoyama will join together and that could decide the outcome," said independent political commentator Hirotaka Futatsuki. "But the situation is fluid. It's not impossible that Noda and Maehara will decide that only one of them will run."

Kan and his four short-lived predecessors have all struggled to implement policies in the face of a divided parliament, where the opposition controls the upper house and can block bills.

The political paralysis is threatening to further undermine Japan's sovereign credit rating. Standard & Poor's already has Japan on an AA-minus rating with a negative outlook. And Japanese credit agency R&I said on Monday it looked increasingly hard to keep Japan at its highest AAA rating.

($1 = 76.245 Japanese Yen)

(Editing by Alex Richardson)

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