Japan PM to meet party kingpin over fate

Japanese Prime Minister Yukio Hatoyama arrives at the parliament for a meeting with his ruling Democratic Party Secretary-General Ichiro Ozawa in Tokyo June 1, 2010.

TOKYO (Reuters) - Japanese Prime Minister Yukio Hatoyama was set to meet a ruling party kingpin on Tuesday as speculation swirled that he might bow to pressure from within his party to resign as his support ratings sink ahead of an election.

Calls have emerged in Hatoyama's Democratic Party of Japan (DPJ) for the premier to step down after just eight months in the job, to revive the party's chances in the upper house election expected on July 11 that it must win to smooth policymaking.

Political confusion, including the weekend 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-ageing population.

There had been some hope in the bond market that the DPJ would unveil its medium- to long-term fiscal strategy and that it might refer to the possibility of raising Japan's consumption tax in the plan, said one strategist.

"But if Hatoyama were to really resign and the Democratic Party were to go through the process of choosing a new party leader, that would likely lead to considerable delays to such discussions and could be negative for the bond market from the standpoint of fiscal risk premiums," said Naomi Hasegawa, a senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Hatoyama, who met with DPJ kingpin Ichiro Ozawa on Monday, reiterated that he would stay and some analysts said it would be hard for him to quit unless Ozawa stepped down too. Voter suspicions about a funding scandal embroiling Ozawa, the party's chief campaign strategist, have also eroded public support.

"I will discuss, cooperate (with Ozawa) and tackle the difficulties this country faces," Hatoyama told reporters.

Ozawa, the DPJ's secretary-general and widely seen as the real power behind the government, was to meet Hatoyama again later on Tuesday, Banri Kaieda, deputy chair of the Democrats' election campaign committee, told TV Asahi.

LEADERSHIP DOUBTS

"There are various moves in the upper house, but there is hardly anyone in the lower house calling for him to quit," said Kaieda, adding that given the short time before the election it would be hard to change leaders now.

"I think he can still become a good prime minister."

The Democrats swept to power after a landslide win in an election for parliament's powerful lower house last August, 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.

Most analysts have tipped outspoken Finance Minister Naoto Kan as the likely successor if Hatoyama quits.

But while recent surveys show a majority of voters think Hatoyama should resign over his broken promise on the Futenma airbase, some party lawmakers called for him to hang on.

"We should see real results going forward, so I think it's best if he continues his work," Health Minister Akira Nagatsuma told reporters, saying more time was needed for the Democrats' policies to take root.

It was also 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.

"They must decide whether to aggressively switch to a line-up that can win or stick with Hatoyama and Ozawa," said Yasunori Sone, a political science professor at Keio University in Tokyo.

"But that raises the question of who should replace him. Of course, (Finance Minister Naoto) Kan is most likely ... but it is not clear whether things would go well under Kan."

(Additional reporting by Linda Sieg and Masayuki Kitano; Editing by Michael Watson)