Kan Vies With Ozawa for Japan's Leadership in Ruling Party Race

Japan’s ruling party will determine today whether Prime Minister Naoto Kan stays in office or is replaced by Ichiro Ozawa, whose call to boost spending to spur economic growth has roiled the bond market.

Each candidate has the support of about 190 Democratic Party of Japan legislators in today’s vote, with between 20 and 30 undecided, the Nikkei newspaper said today, citing its own estimates. Kan is believed to be leading in the write-in ballots from regional DPJ politicians and members, the paper said.

“Chances are higher that Mr. Kan will win given the media projection reports,” said Airo Hino, a political science professor at Waseda University in Tokyo.

The possibility of an Ozawa victory drove bond yields higher this month after he pledged to more than double Kan’s 915 billion yen ($11 billion) stimulus package, even at the cost of increasing the world’s largest debt. Kan’s three-month-old administration is struggling to bolster a fragile economic recovery hampered by deflation and a strengthening yen.

The DPJ will meet at 2 p.m. today and the results should be known sometime after 3 p.m. The winner is ensured of being prime minister because of the party’s majority in the lower house of parliament.

Ozawa, 68, heads the party’s largest faction and engineered the 2009 landslide that almost tripled its seats in parliament. He has proposed a 2 trillion yen stimulus package and said the government should intervene in the currency markets to curb the yen’s surge to a 15-year high against the dollar.

He has also pledged to renegotiate an accord with the U.S. to keep a Marine base in Okinawa in the face of local opposition. Doing so would reopen a dispute that damaged ties with the White House and led to the June resignation of Yukio Hatoyama as the DPJ’s first prime minister, and the appointment of Kan, 63.

Ozawa remains under investigation for a campaign-funding scandal that led to the indictment of three of his aides. Kan has called on Ozawa to explain his role in the affair. Ozawa has denied any wrongdoing.

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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