TOKYO - Unpopular Prime Minister Yasuo Fukuda resigned on Monday in an effort to break a political deadlock, becoming the second Japanese leader to resign abruptly in less than a year.
Fukuda has been struggling to cope with a divided parliament where the opposition parties control the upper house and can delay legislation, even as the world's No.2 economy slips towards recession.
"If we are to prioritise the people's livelihoods, there cannot be a political vacuum from political bargaining, or a lapse in policies. We need a new team to carry out policies," Fukuda said.
"Taking into consideration that the extraordinary session of parliament should go smoothly, I thought it would be better for someone else to do the job than me," Fukuda said.
Although Fukuda announced his decision hastily, some members of his cabinet have already predicted his resignation, according to Professor Gao Hong from the Chinese Academy of Social Sciences.
Fukuda, who is 72 years old now, has found it increasingly difficult to deal with the domestic affairs. "Fukuda needs to choose between resigning now and quitting after the general election," said Gao, "His choice of current resignation is a way of saving his face, putting an end to his less than one year term as Prime Minister."
Analysts said that LDP Secretary-General Taro Aso, an outspoken, right-leaning former foreign minister, was the frontrunner to succeed Fukuda.
Gao predicted it is highly likely that Aso will be the successor of Fukuda.
"According to the current situation, Taro Aso and Sadakazu Tanigaki, the Minister of Land, Infrastructure, Transport and Tourism, are two possible candidates for the position of Prime Minister," said Liu Jiangyong, professor from the Institute of International Studies of Beijing-based Tsinghua University.
Speculation has been simmering that the unpopular prime minister might be replaced ahead of a general election that must be held by September 2009.
The dollar popped back above 108 yenand the euro back up toward 158 yen on the surprise news, which caught traders off guard in a thinner market than usual because of a U.S. holiday.
"Markets don't like political uncertainty and this falls firmly into that camp. It doesn't help overall, even if he hasn't been particularly popular," said Jeremy Stretch, markets strategist at Rabobank in London.
Fukuda's resignation does not automatically mean an election. His party, the Liberal Democratic Party, must pick a new leader and win the confidence of parliament's lower house if it wants to carry on leading Japan's coalition government.
The bespectacled Fukuda, a moderate conservative who favours close ties with Japan's Asian neighbours, took office last September after his predecessor, Shinzo Abe, suddenly resigned.
He has since seen his popularity sink on doubts about his leadership in the face of the divided parliament, where a feisty opposition is keen to force an early election for the powerful lower house and oust the long-ruling LDP.
A government economic relief plan unveiled on Friday that included a promise of income tax cuts and about $16.5 billion in extra spending this year to ease the pain of rising prices, failed to revive his public support ratings.
A survey by the Nikkei business daily released on Monday showed support for Fukuda's cabinet fell nine points to 29 percent, back to levels before a cabinet reshuffle last month.
Concerns about Fukuda's leadership were deepened, analysts said, by a spat within the ruling bloc over the tax cuts, demanded by the junior coalition partner despite doubts within the dominant Liberal Democratic Party over their impact and worries about how to fund them.