TOKYO, Sept 7 – Japanese Prime Minister Naoto Kan has a slight lead over powerbroker Ichiro Ozawa in a ruling party leadership race just one week before the vote, but his victory will be by a small margin, a key aide to Kan said today.

The winner of the September 14 Democratic Party of Japan (DPJ) leadership vote will likely be premier by virtue of the party’s majority in parliament’s lower house, taking the helm as Japan struggles with a strong yen, weak economy, huge public debt and a divided parliament.

Financial markets are bracing for a shift away from Kan’s efforts to rein in debt already twice the size of the US$5 trillion economy if Ozawa wins, as media surveys suggest is possible.

Hajime Ishii, an upper house lawmaker and No. 2 in Kan’s (picture) campaign organisation, said the prime minister and Ozawa were neck-and-neck among members of parliament (MPs) but that Kan was in the lead among local lawmakers and party members and supporters, whose votes carry less weight than those of the MPs.

“There is still a week left and until we see how the situation changes, we won’t know,” Ishii said in an interview. “It will be by a small margin.”

Ishii also said that parliamentary business would grind to a halt and a snap election called within the year if Ozawa won, since opposition parties would attack him over a funding scandal in which the veteran lawmaker faces possible indictment.

Political analysts and Japanese media say the race is too close to call, since Ozawa, 68, heads the party’s biggest group but Kan – who took office in June as Japan’s fifth premier in three years – has better ratings among the general public.

Ozawa resigned as party leader over a funding scandal last year and quit as party No. 2 in June over another scandal. A judicial panel of ordinary citizens is expected to rule in coming months whether Ozawa must face indictment in the affair.

“If Ozawa wins, parliament will fall into confusion and there will immediately be a snap election because he has not cleared the issue of his money scandal,” Ishii said, adding that policy matters such as how to cope with the yen’s rise or the sales tax would all be sidelined.

The Democrats swept to power for the first time last year, promising change. But the party and a tiny coalition partner lost their majority in a July upper house election after Kan floated the idea of a future rise in the five per cent sales tax, forcing them to seek opposition help to enact legislation. – Reuters