(For more stories on Japanese politics click on [ID:nPOLJP]) (Recasts, adds frontrunner for new leader, adds analyst comment)
By Linda Sieg
TOKYO Feb 23 (Reuters) - Almost four out of five Japanese voters want Prime Minister Taro Aso to quit within months and just over half want the opposition to win power, a poll showed on Monday, the latest bad news for the ruling party in an election year.
Public support for 68-year-old Aso, already slumping after policy flip-flops and gaffes, took another hit when close ally Shoichi Nakagawa quit as finance minister last week after being forced to deny he was drunk at a G7 news conference in Rome. [ID:nT79787]
Some in Aso's own conservative Liberal Democratic Party (LDP) have called for him to be replaced ahead of a general election that must be held by October, although Japan has already had three premiers since the last election in 2005.
The new finance minister, 70-year-old Kaoru Yosano was emerging as a frontrunner to replace Aso, although an analyst said it was unclear if the LDP would rally around him.
The Mainichi newspaper survey, released on the eve of Aso's meeting with U.S. President Barack Obama in Washington on Tuesday, showed that 39 percent wanted the prime minister to resign immediately. Another 39 percent said he should step down after the budget for the fiscal year from April is passed.
Parliament is debating a record 88.5 trillion yen ($947 billion) government budget for the next year as slumping exports send bankruptcies soaring and the economy into a deepening recession.
The budget is expected to be approved by parliament's lower house this week and take effect 30 days after that at the latest.
A number of polls have shown the LDP is in danger of being ousted at the polls, ending more than a half-century of almost unbroken rule.
That would usher in a government led by the Democratic Party of Japan, which has promised to reduce bureaucratic control of policy and boost Tokyo's diplomatic independence from Washington.
YOSANO AT THE HELM?
Yosano, a fiscal hawk who has shown flexibility about spending as the recession worsens, added the finance and banking supervision portfolios to his economics post after Nakagawa quit, prompting some media to refer to a "de facto Yosano government". [ID:nT260809]
"Yosano is the front runner given the conditions at this juncture. Basically, they need someone kind of coordinator," said Koichi Nakano, a Sophia University political science professor.
"He is senior and regarded as a safe pair of hands," Nakano added. "LDP bosses may think Yosano is a good figure to unite the party but ... so-called reformers may not find it so easy to fall in behind him."
Yosano ran neck-and-neck with popular former prime minister Junichiro Koizumi when voters were asked in a Nikkei business daily poll whom they saw as best-suited to be premier next.
Both garnered 9 percent, in second place after Democratic Party leader Ichiro Ozawa with 17 percent. Only four percent of those surveyed chose Aso.
Koizumi plans to retire from parliament in the next election, and few if any analysts expect him to stage a comeback.
Yosano could gain support from conservatives who are angling for a "grand coalition" that would bring the LDP and main opposition Democratic Party of Japan together to battle a deepening recession, but the outlook for such a deal is murky at best given the opposition's rising fortunes.
Fifty-one percent of respondents to the Mainichi survey said they wanted the Democrats to win the next election, more than double the 22 percent who opted for the LDP.
The Nikkei survey also had the Democrats well ahead, with 42 percent planned to vote for that party against 26 percent who favoured the LDP.
The global credit crisis is increasing its grip on Japan. Smaller smaller businesses that feed parts and services to major exporters, and employ 70 percent of Japanese workers, are caught in a squeeze between sliding orders and tightening lending.
A lender to such firms, SFCG Co Ltd 8597.T, failed on Monday owing $3.6 billion to creditors in the biggest bankruptcy this year and shares of other non-bank lenders fell sharply. [ID:nT280480]
The Democrats' Ozawa discussed a 'grand coalition" with then-prime minister Yasuo Fukuda in 2007, but his party roundly rejected the idea and the proposal was dropped. ($1=93.50 Yen) (Additional reporting by Yoko Nishikawa; Editing by Rodney Joyce)