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'Japan's Noda likely to win party vote for PM'

Japanese finance minister Yoshihiko Noda, a fiscal hawk, will likely defeat trade minister Banri Kaieda in a second-round ruling party vote to pick the country's latest Prime Minister, Kyodo news agency said.

world Updated: Aug 29, 2011 11:39 IST

Japanese finance minister Yoshihiko Noda, a fiscal hawk, will likely defeat trade minister Banri Kaieda in a second-round ruling party vote to pick the country's latest Prime Minister, Kyodo news agency said, an outcome that would please investors worried about a bulging public debt.

The winner of the run-off, required after none of five candidates won a majority in an initial vote, must cope with a resurgent yen that threatens exports, forge a new energy policy while ending the worst nuclear crisis since Chernobyl, and find funds to rebuild from the March 11 tsunami at a time when huge public debt has already triggered a credit downgrade.

Financial markets, political commentators and the Japanese public are sceptical whether the new leader will have the vision, determination and time to tackle those challenges.

Bond markets will welcome the choice of Noda, who among the candidates has been the only one consistently calling for Japan to face painful reforms to rein in the country's ballooning fiscal deficit. Government bond futures nudged higher after Noda made into the second round.

"Let's do the utmost to tackle what we have promised and if there's not enough money, we might ask the people to share the burden," Noda said before the vote, in a reference to future tax hikes.

Like Kan, the new leader -- to be formally voted by parliament on Tuesday -- faces a divided legislature and internal party rifts, raising concerns that he will join a gallery of short-lived prime ministers.

No Japanese prime minister has lasted much more than a year since 2006 and most market players polled by Reuters this month thought the next government head will be no exception.

OPPOSITION STRATEGY

Kaieda, 62, who also held the energy portfolio, clashed with Kan over whether and when to restart nuclear reactors shut for checks, and burst into tears before TV cameras when he was grilled in parliament about the dispute.

In a rare moment of levity ahead of the vote, the jowly-faced Noda compared himself to a "dojo" loach fish - an eel-like denizen of the deep. "I do look like this and if I become prime minister, the support rate would not rise, so I would not call a snap election. A loach has its own abilities even though it cannot do as a goldfish does."

Both Noda and Kaieda have said Japan should not build new reactors, effectively phasing out nuclear power over 40 years.
Kaieda's win could unsettle bond investors worried about Japan's debt, already twice the size of its $5 trillion economy, given his reluctance to endorse tax hikes to finance the bulk of $250 billion reconstruction from the March tsunami.

Moody's Investors Service cut Japan's sovereign credit rating last week citing a buildup of public debt and a lack of leadership and a long-term strategy to cope with its fiscal challenges.

Despite differences over policies such as whether to raise taxes to pay for rebuilding, plans for nuclear energy and how to secure opposition cooperation, none of the five candidates has presented a detailed vision of how to end Japan's decades of stagnation and revitalise the world's third-biggest economy.

Instead, the leadership contest has become a battle between allies and critics of Ichiro Ozawa, a 69-year-old political mastermind who heads the party's biggest group even as he faces trial on charges of misreporting political donations.
Kaieda is backed by Ozawa, Noda is supported by his critics.

One of the new leader's first challenges will be seeking opposition help in parliament, where the opposition controls the upper house and can block legislation. Noda has floated the idea of a "grand coalition" with opposition rivals -- although the two biggest opposition groups have been cool.

Kaieda says he's not keen on that strategy.