Japan's newly appointed Finance Minister Yoshihiko Noda reacts during a group interview at the ministry in Tokyo in this June 9, 2010 file photo. 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 on June 9, 2011. [Photo/Agencies]

TOKYO - Japanese Finance Minister Yoshihiko Noda, an advocate of a higher sales tax to fix state finances, emerged on Thursday as a possible frontrunner to replace Naoto Kan as premier after a newspaper said ruling party executives would back his candidacy.

But whether Noda has the political skills to manage a possible "grand coalition" to break a parliamentary deadlock as Japan struggles with a nuclear disaster and huge public debt is in some doubt.

The Asahi newspaper said senior Democratic Party officials planned to nominate Noda as a candidate for the post in a party election to choose a new leader when Kan steps down, possibly later this month, and that Noda himself is keen to run.

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Noda, 54, has backed Kan's push for tax reforms, including a sales tax increase, to fund the rising social security costs of a fast-ageing population and rein in a huge public debt, which at double the $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."

Momentum is building for a "grand coalition" between the Democrats and the main opposition Liberal Democratic Party (LDP) to break the logjam in parliament, where the opposition controls the upper house and can block bills.

But hurdles persist to forming a tie-up, including quibbling over how long it would last and whether it would do more than cope with the aftermath of the March 11 earthquake and tsunami that devastated northeast Japan and triggered a radiation crisis at Tokyo Electric power Co's Fukushima nuclear plant.

"It's looking far less certain that they are going to have a coalition," said Sophia University professor Koichi Nakano.

Noda declined comment when asked about the Asahi report.

NAME RECOGNITION DEFICIT

The unpopular Kan, Japan's fifth prime minister in as many years and himself in power for just one year, last week survived a no-confidence vote by saying he would step down.

However, he did not say when. Rivals in his own party as well as the opposition want him to leave as soon this month, clearing the way for a coalition with the LDP.

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, the 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, the report added.

Analysts said Noda would be an acceptable choice for the LDP, so his victory in a DPJ election could smooth the way to pass 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.

But Noda lacks a high profile with the public, and may face criticism as being under the thumb of finance bureaucrats.

"He's neatly positioned," Nakano said. "On the other hand, in terms of name recognition with ordinary Japanese, it's close to zero."

Noda had already been floated as a possible contender to replace Kan, along with 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 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.