By Leika Kihara
TOKYO (Reuters) - Japanese Finance Minister Yoshihiko Noda, a fiscal hawk, is emerging as a frontrunner to replace Naoto Kan as prime minister and head of the ruling Democratic Party, a newspaper reported Thursday.
Senior ruling party officials plan to nominate Noda as a candidate for the post in a party election to choose its new leader when Kan steps down, and Noda himself is keen to run, the Asahi newspaper said.
Noda, 54, has backed Kan's push for fiscal and tax reforms, including a future sales tax hike, to rein in Japan's huge public debt, which at double its $5 trillion economy is the worst among advanced economies.
"Markets will like Noda as prime minister. He will try to push through tax hikes and fiscal reforms," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But ruling party lawmakers themselves cannot agree on anything. I don't see how ruling and opposition parties could start to work together, even under Noda."
Noda refused to comment when asked about the report by reporters.
Kan, struggling to contain a nuclear crisis at the crippled Fukushima power plant and rebuild Japan's northeast from a devastating March 11 earthquake and tsunami, last week survived a no-confidence vote by saying he would step down.
He did not say when, though, and rivals in his own party as well as the opposition want him to leave as soon this month, clearing the way for a coalition that could break a policy deadlock in a divided parliament.
Senior ruling party officials, including Chief Cabinet Secretary Yukio Edano, his deputy Yoshito Sengoku and party's No. 2 Katsuya Okada, have met to discuss a replacement for Kan. They agreed not to run in the election themselves and to nominate Noda for the post, Asahi said.
The executives agreed to hold a party election in early July on the assumption that Kan would step down by the end of this month, according to the report.
Noda would be an acceptable choice for opposition parties, the paper said. That may smooth passage of bills to issue bonds to fund a significant portion of the current fiscal year's state budget, as well as the second extra budget for reconstruction from the March disaster.
"He could form a stable government," one political source said.
Noda has already been floated as a possible contenders to replace Kan, alongside Sengoku and former Foreign Minister Seiji Maehara.
Maehara, known for his conservative views on security issues, would be a popular choice but political sources say he may decide to sit out the leadership race after abruptly quitting his cabinet post in March to take responsibility for accepting donations from a foreign national.
The newspaper said that ruling party lawmakers who are close to scandal-tainted powerbroker Ichiro Ozawa, and who oppose plans to raise taxes, may try to nominate their own candidate with Economics Minister Banri Kaieda emerging as a possibility.
(Editing by Tomasz Janowski and Alex Richardson)