Japan PM woes grow as MP threatens to quit party

By Chisa Fujioka

TOKYO (Reuters) - A former Japanese financial services minister threatened to quit the ruling party Monday if his policy demands were not met, in the latest sign of Prime Minister Taro Aso's fraying leadership as he tries to revive the economy.

Aso, with a public support rate short of 20 percent, is struggling to keep control of his long-ruling Liberal Democratic Party (LDP) ahead of an election for parliament's powerful lower house that must be held this year.

Despite having announced a record budget for the fiscal year starting in April and two other extra budgets for the current year, Aso has been criticized by the opposition and even by lawmakers within his party over how the money will be spent.

"Proposals from ministries were just stapled together," Yoshimi Watanabe, a vocal critic of Aso's policies, told a news conference. "We can't deal with the crisis this way."

Watanabe said he would leave the LDP if Aso did not consider and debate a raft of demands, including calling an early election and withdrawing a controversial plan to pay out 2 trillion yen ($21.75 billion) to ordinary households.

The proposed payouts have been blasted by critics as a waste of money and a headache for local governments responsible for distributing the hand-outs.

Chief Cabinet Secretary Takeo Kawamura defended the plan, saying the money was aimed as helping households and raising consumption as the government tries to shield the economy, already in recession, from a wave of bankruptcies and layoffs.

"We're not in a situation where we can back out of this plan," he told a separate news conference.

DOUBTS OVER BUDGET

Bickering within the LDP has raised doubts over whether Aso will be able to pass the budget and related legislation through parliament, with the ruling bloc already under pressure from opposition parties who control the upper house and can delay bills.

Speculation has simmered that a handful of LDP lawmakers, including Watanabe, could bolt the LDP and join the opposition in blocking budget-related bills over the coming months, a move that would risk the collapse of Aso's government.

Still, it was not clear whether Watanabe could drum up enough support from fellow lawmakers to pose a serious threat.

"It's not as if there were 10 or 20 people leaving the LDP to form a new party," said Nobuteru Ishihara, the LDP's deputy secretary general, although he admitted that Watanabe's comments were negative for the party.

Analysts were also skeptical that many other lawmakers would join forces with Watanabe. "I think Watanabe will leave the party but I think it is impossible for many others (to follow)," said Yasunori Sone, a professor at Keio University.

"Watanabe can win his seat whether he is in the LDP or not, so it's easy for him to decide (to leave)," Sone added. "The situation is different for others, so it is hard for them to imitate him."

(Additional reporting by Linda Sieg and Yoko Kubota; Editing by Hugh Lawson)