Japan's Prime Minister Naoto Kan (2nd R) is surrounded by security agents as he leaves a budget committee meeting in the upper house of parliament in Tokyo March 7, 2011. [Photo/Agencies]

TOKYO - Japan's unpopular Prime Minister Naoto Kan refused on Monday to step down after the resignation of his foreign minister over a political funding scandal that has added to pressure on him to quit or call a snap election.

But it is far from clear how Kan, if he does manage to cling to office, will be able to resolve the political stalemate that has left the government struggling to implement policies to cut into a huge public debt and win approval from a divided parliament to enact a new budget from April.

"Carrying out the administration's duty for the four-year term and then letting the people decide at the ballot box is best for the people themselves," he told a parliamentary session.

"I intend to firmly fulfill my duty until that time comes." But some analysts warned that Kan's government may well collapse sooner rather than later. He is Japan's fifth leader since 2006 and has no clear successor in sight.

The resignation of Seiji Maehara, a security hawk and critic of China's military buildup, removes a strong contender to replace Kan and has deepened the impression of a government in disarray, unable to resolve fundamental problems facing the world's third largest economy. The stalemate is blocking the passage of bills to implement a $1 trillion budget for the year from April and keeping the government from tackling tax reforms to curb massive public debt, already twice the size of the $5 trillion economy.

Kan has made fiscal reforms, including a rise in the 5 percent sales tax, a priority as a way to fund the social costs of a fast aging society. But he has failed to get opposition parties to join in talks on the topic.

Japan's Rating and Investment Information (R&I) agency said on Monday it may cut the country's sovereign rating before local elections in April as deepening political turmoil could delay efforts to fix the country's tattered public finances.

Standard & Poor's cut Japan's rating by one notch in January and Moody's warned last month that lack of success on fiscal reform would have a negative impact on its rating.

Lack of ability

Chief Cabinet Secretary Yukio Edano will serve temporarily as foreign minister while Kan picks a successor, who will have their hands full managing strained ties with China and Russia and keeping relations with ally Washington on an even keel.

Kan's health minister, Ritsuo Hosokawa, is also under fire for his messy handling of measures to help housewives who had mistakenly failed to pay their pension premiums. Media warned more cabinet ministers could quit in a "domino effect", although Kan told parliament that he wanted to keep the health minister in his post.

Kan faces pressure from within his own fractious Democratic Party of Japan (DPJ) to step down, while opposition parties are pushing him to call a snap election in the lower house.

Reuters