The race to pick a new Japanese leader tightened on Thursday after a report that a group loyal to a party powerbroker was backing a little-known rival to fiscally conservative Finance Minister Naoto Kan.
Japan's Democratic Party (DPJ) will vote on Friday to pick a new leader after unpopular Prime Minister Yukio Hatoyama abruptly quit this week to improve his party's chances in a July upper house poll the ruling bloc needs to win to avoid policy deadlock.
Investors worry that the political chaos could delay efforts to thrash out plans, due out this month, to cut a public debt already twice the size of Japan's GDP and to craft a strategy to engineer economic growth in an ageing society.
Underscoring the urgency of the task, a Japanese central banker said she hoped the next leader would unveil a medium- and long-term fiscal reform programme as scheduled in June.
"Otherwise, trust in the government's policy may be affected," Bank of Japan policy board member Miyako Suda told business leaders in Wakayama, western Japan.
Finance minister Kan, 63, is still seen as the frontrunner in the race to pick Japan's fifth prime minister in three years, but the jockeying could ensure that party kingpin Ichiro Ozawa, who quit as secretary-general along with Hatoyama, still has clout.
That could affect how aggressively Japan tackles its debt.
Kan, a former health minister once known for battling bureaucrats, 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.
NHK public television said a group loyal to Ozawa, a political mastermind seen as pulling the strings in Hatoyama's government, would back a little-known lawmaker, 50-year-old Shinji Tarutoko. Jiji news agency however said later group members could vote as they pleased.
"Kan is still expected to win, but if Ozawa's supporters back Tarutoko, it will be a show that there are forces against Kan and he may have to listen to their demands on who to appoint in the cabinet and in the party's top posts," said Tetsuro Kato, a political science professor at Waseda University.