Japan's PM Noda likely to keep party leadership

TOKYO Mon Sep 10, 2012 3:09am EDT

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TOKYO (Reuters) - Japan's Prime Minister Yoshihiko Noda looked very likely on Monday to hang on to one of the worst jobs around - leading the demoralized ruling party to almost certain crushing election defeat.

The Democratic Party of Japan election commission confirmed on Monday that besides Noda, there would be three fringe contenders running in the September 21 leadership contest - former farm ministers Hirotaka Akamatsu and Michihiko Kano and an ex-internal affairs minister Kazuhiro Haraguchi

With no party heavyweights on the roster, Noda is likely to retain his post as government and party chief.

In his election pledge, Noda said he would bring a lasting end to deflation that has plagued Japan for a decade and hit a 1 percent inflation target within a year. The Democrats' third prime minister in as many years also promised to work towards ending reliance on nuclear power, though he gave no deadline.

"I cannot abandon the government halfway through. With that in mind, I've decided to run in the leadership race," he told a joint news conference with the other candidates.

But Noda's days in power appear numbered with opinion polls showing the Democrats trailing the opposition Liberal Democratic Party and a new grouping led by a popular Osaka mayor Toru Hashimoto which plans to contest the next general election expected before the end of the year.

"It looks certain that Noda will win," Hidenori Suezawa, chief strategist at SMBC Nikko Securities said.

"But financial markets are focusing on the main opposition's leadership race later this month and Hashimoto's 'Ishin no Kai' party, as they will play a key role in a political reshuffle after general elections, not the Democrats," Suezawa said.

LDP leader Sadakazu Tanigaki said on Monday he would not seek re-election. The party's former defence and foreign ministers are in contention, with media reporting that the party's current No.2 Nobuteru Ishihara and former prime minister Shinzo Abe will also join the race slated for September 26.

The lower house's term ends in August 2013, but Noda promised to call an election "soon" in return for the opposition backing for his plan to raise sales tax to offset rising social security costs.

Last month's passage of the tax bill marked a rare break in Japan's long political gridlock and the biggest accomplishment of Noda's one-year tenure, but it came at a steep price.

About 70 lawmakers left the Democrats, with the rest bracing for voter backlash for backing the tax hike and other unpopular policies, such as Noda's push to restart nuclear reactors idled after last year's Fukushima disaster.

The government is due to present a national energy plan in coming days that will try to respond to the growing anti-nuclear sentiment among voters without alienating pro-nuclear industrial lobbies, but risk satisfying neither side.

If he is reelected, Noda's immediate challenge will be to win approval of the opposition-controlled upper house for new borrowing in the current budget to avoid a government shutdown.

Whoever takes over after the election, many expect to be held in November, will face substantial unfinished business and a long list of deep-rooted problems dogging the world's third-largest economy and its 10th most populous country.

Further steps beyond sales tax hikes are needed to prevent Japan's public debt from piling up, the nuclear phase-out will require a major overhaul of the energy sector and pulling Japan out of deflation calls for major market and structural reforms.

The rebuilding after the magnitude 9 earthquake and tsunami that struck Japan's northeast on March 11, 2011 is far from over and the full decommissioning of the crippled Fukushima nuclear plant and the clean-up of its surroundings will take decades.

Tokyo's efforts to revive its exports through free trade deals have also stalled amid political stalemate, while relations with Asian peers South Korea and China soured in the past weeks as simmering territorial disputes flared up.

(Additional reporting by Shinji Kitamura; Writing by Tomasz Janowski, Editing by Jonathan Thatcher)

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