Japan PM Hatoyama resigns ahead of election

World  |  Japan

Calls have built up in Hatoyama's Democratic Party for him to step down to revive the party's fortunes ahead of an election for the upper house of parliament expected on July 11 that it must win to smooth policymaking.

With tears in his eyes, Hatoyama told a party gathering both he and party secretary-general Ichiro Ozawa would resign their posts.

Analysts have tipped outspoken Finance Minister Naoto Kan as the likely successor to Hatoyama, who quits after just eight months on the job.

Political rows, including the recent departure of a tiny leftist party from the ruling coalition, has distracted the government as it thrashes out a plan to cut huge public debt and a strategy to engineer growth despite a fast-aging population.

Hatoyama becomes the fourth straight Japanese leader to leave office after a year or less in office.

"Hatoyama's resignation may cause delays in the scheduled releases this month of the government's growth strategies and fiscal discipline targets. Whoever replaces Hatoyama would need to work them out before an upper house election, or else disappoint voters," said Hirokata Kusaba, an economist at Mizuho Research Institute.

"Things could not get any worse after Hatoyama quits, given the current deadlock in many important issues."

Finance Minister Kan has in the past pressed the Bank of Japan to do more to fight deflation and has sounded more positive than Hatoyama about raising the 5 percent sales tax in the future to fund bulging social welfare costs.

That stance would be welcomed by investors worried about Japan's huge public debt, which is nearly 200 percent of GDP.

"If Finance Minister Kan takes over, it would be welcome news for the JGB market because Kan is more proactive about fiscal discipline and about raising the consumption tax than any other cabinet minister," Mizuho Research's Kusaba said.

DOUBTS ABOUT RATINGS BOOST

The Democrats swept to power last August after a landslide election win for parliament's powerful lower house, ousting the conservative Liberal Democratic Party (LDP) after more than 50 years of almost non-stop rule.

But doubts over Hatoyama's leadership skills have eroded the government's approval ratings, with one poll showing support at just 17 percent after he failed to keep a campaign pledge to move a U.S. airbase off Okinawa island in southern Japan.

It was unclear whether a change at the top would improve the Democrats' chances in the upcoming election, since many voters were outraged when two leaders of previous LDP-led governments quit abruptly after just a year in office.

Pundits had said that unless Ozawa also quit his post as secretary-general, any boost in popularity was likely to be limited at best.

Voter suspicions over a funding scandal embroiling Ozawa, seen by many as the real power behind Hatoyama's administration, were a big factor in the party's ratings slide.

(Editing by Rodney Joyce)