TOKYO - THE front runner to become Japan's next leader will pledge tax cuts and bigger government spending to boost the economy, a newspaper said on Monday, a contrast with rivals worried about the country's huge debt.

The winner of the contest to replace outgoing Prime Minister Yasuo Fukuda is widely expected to call a general election, perhaps in November, to take advantage of a hoped-for bounce in popularity and fight off a challenge from a feisty opposition.

In a manifesto entitled 'Japan's potential strength - Creating a strong and cheerful Japan', former Foreign Minister Taro Aso will pledge to stimulate the economy through income tax cuts and regulatory reforms, the Yomiuri newspaper said.

Other candidates set to run in a Sept 22 race for the leadership of the ruling Liberal Democratic Party are playing down the need for spending and focusing on the need to rein in public debt or proceed with structural economic reforms.

Economics Minister Kaoru Yosano will pledge in his manifesto 'Dignified Politics, Agreeable Reforms', to overhaul the tax system, including a rise in the 5 per cent consumption tax, over three years to cover rising social security costs, the Yomiuri said.

While few expect a return to the massive spending of the 1990s that left Japan with the highest public debt among advanced nations, the LDP race is offering ruling party members a choice.

'You're talking about sequencing. You're talking about priorities,' said Mr Jesper Koll, CEO of investment advisory Tantallon Research Japan.

'Aso's priority is to counter a cyclical downturn with deficit spending. Yosano's is to reduce the burden on future generations.'

Setting priorities
Former Defence Minister Yuriko Koike, who is aiming to become Japan's first female prime minister, will include in her platform call for an environment tax as well as measures to improve working conditions for women to help address Japan's falling birth rate and shrinking labour force, the newspaper added.

Another former defence minister, Shigeru Ishiba, has said he wants to focus on security policy, but also wants to listen to the concerns of those who were suffering economically.

Some economists dismissed the policy gaps as more apparent than real. 'In a practical sense, how much difference will it make? Not much,' said Mr Richard Jerram, chief economist at Macquarie Securities (Japan) Limited.

'Their ability to make policy aggressively seems deeply constrained by the political situation, first of all, and in terms of the split in parliament and a lack of unity in the LDP.'

The unpopular Mr Fukuda quit abruptly last week, the second premier to resign in less than a year, in the face of a deadlock where the opposition controls the upper house and can delay laws.

The new LDP leader is expected to become prime minister because of the party's majority in parliament's lower house.

Despite Mr Aso's apparent lead, some political analysts said his victory was not a done deal.

'If there are five or six candidates, Aso will appear isolated as the only one promoting pork-barrel spending,' said Keio University Professor Yasunori Sone.

Mr Aso's manifesto did not specify how he might change consumption tax, the Yomiuri said, but he pledged at the weekend not to raise it until the economy improved.

Whoever becomes the next prime minister will square off in the looming general election against Democratic Party leader Ichiro Ozawa, whose third term was confirmed on Monday.

Mr Ozawa has stressed the need to shrink social gaps, reduce the power of bureaucrats over policy formation, and pay for basic public pensions with tax revenues. Like Mr Aso, he has come under fire from critics for not addressing Japan's fiscal woes.

Although analysts have said the ruling bloc was likely to lose seats, if not its majority, in the next general election, Mr Fukuda's resignation has given the LDP a ratings boost.

A weekend survey by Asahi TV showed support for the LDP was up 5.6 points to 42.9 per cent, while backing for the Democrats fell 3.5 points to 25.9 per cent. -- REUTERS