TOKYO - JAPAN is expected to have a new prime minister replacing Mr Yasuo Fukuda by the end of the month, with reports Tuesday saying the ruling party would vote on September 22.

Mr Fukuda, who is facing dwindling approval ratings, suddenly resigned on Monday and called a new election for president of his Liberal Democratic Party (LDP), who would then become prime minister after endorsement by parliament.

Former foreign minister Taro Aso, the LDP's secretary general, is seen as a front-runner and signalled on Tuesday that he planned to run.

Mr Takashi Sasagawa, chairman of the LDP's general affairs committee, said the party would meet on Wednesday to formally set a date for the internal leadership vote.

Jiji Press, quoting party sources, said the LDP was eying September 20 for the election, while Kyodo News said the vote could be on September 22.

The timing would be aimed at overshadowing a similar leadership contest by the main opposition Democratic Party, which is also pressing for early general elections.

Democratic Party leader Ichiro Ozawa is expected to win another term easily on September 21 after his party rivals backed out under pressure.

JAPAN began searching for a new prime minister on Tuesday after Mr Yasuo Fukuda became the second leader to resign in less than a year, threatening a further policy vacuum as the economy teeters on the brink of recession.

Topping the list of likely candidates to become Japan's 11th prime minister in 15 years is former foreign minister Taro Aso, 67, an outspoken nationalist who now holds the No. 2 position in the ruling Liberal Democratic Party (LDP). He was runner-up to Mr Fukuda in the race for party chief last year.

Other potential contenders whose names have been floated in the past include Economics Minister Kaoru Yosano, known for his commitment to fixing Japan's tattered finances, and Ms Yuriko Koike, who last year became the country's first female defence minister, although she only held the post briefly.

Unpopular Mr Fukuda, 72, had been struggling to cope with a divided parliament where opposition parties have the power to delay legislation, and his sudden departure had raised questions about his conservative party's ability to cling to power or even hold together after ruling Japan for most of the past 6 decades.

Market analysts said Japan's stock and bond markets would likely suffer another blow from the sudden resignation of Mr Fukuda, with his departure seen clouding the reform outlook and potentially spurring debt-funded spending.

Such dismay among investors would likely dog the yen and the Nikkei share average while driving government bond yields higher on worries about how much money the LDP might spend to restore its dismal public ratings, analysts said.

Japan has had 10 prime ministers since 1993, when the current head of the main opposition Democratic Party, Mr Ichiro Ozawa, left the LDP and sparked political upheaval that saw the long-ruling party briefly lose its grip on power.

Mr Ozawa makes no secret his desire to force an early election for parliament's powerful lower house in hopes of ousting the LDP and its junior coalition partner, the New Komeito.

'The LDP will have to elect a new leader and (LDP) Secretary-General Taro Aso is the most likely candidate to succeed,' said Mr Tsuyoshi Segawa, an equity strategist at Shinko Securities.

'But the Democrats will be on the attack, accusing the LDP of irresponsibility, and a general election will be difficult to avoid,' Mr Segawa said.

'Even if Aso comes to power, it is quite likely that it will only be an interim government, so this will be difficult for stock market to digest.'

The bespectacled Mr Fukuda, a moderate conservative who favours close ties with Japan's Asian neighbours, took office last September after his predecessor, Mr Shinzo Abe, also suddenly resigned after just a year in office.

Mr Fukuda's resignation does not automatically mean early election. However, whoever the LDP picks as its leader, and thus the next prime minister, might chose an early poll to take advantage of any rise in public support.

A complete deadlock in parliament could also force the prime minister to call an election reluctantly. The LDP-led ruling bloc is almost certain to lose seats, if not its majority.

Analysts said the next LDP prime minister would face similar woes given the parliamentary deadlock and the party's rusting political machine and scandal-tainted image.

Talk of a broad realignment of party alliances has been simmering since the opposition took control of the upper house last year, but it remains to be seem if early moves pick up steam. -- REUTERS

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