Japan's ruling coalition splits, throwing Takaichi's PM bid into doubt

By Kantaro Komiya and Tim Kelly

TOKYO, Oct 10 (Reuters) - Sanae Takaichi's bid to become Japan's first female prime minister was thrown into doubt on Friday when her ruling party's junior coalition partner quit.

The Liberal Democratic Party, which has ruled Japan for almost all of the postwar era, selected hardline conservative Takaichi as its new head in a weekend vote. But she must win approval in parliament to become premier later this month.

That had been seen as fairly straightforward given her coalition had by far the most seats, though it was short of a majority. But with partner Komeito's exit and opposition parties seeking to unite behind an alternative candidate, her path has suddenly become less certain.

Following a meeting with Takaichi on Friday, Komeito leader Tetsuo Saito said the two parties' 26-year partnership had broken down over the LDP's failure to respond to a political funding scandal that has dogged the ruling group for two years.

He said Komeito would not support Takaichi in the parliament vote, expected to be held in the second half of October.

Takaichi called Komeito's decision "extremely regrettable" but said she would do whatever she could to win parliament's backing.

The political turmoil comes ahead of a number of Japanese diplomatic engagements, with multilateral summits in Malaysia and South Korea, and U.S. President Donald Trump widely expected to visit Japan at the end of the month.

The yen strengthened as much as 0.5% to 152.38 per dollar after the news. It had fallen to an eight-month low earlier this week as investors fretted that Takaichi's big spending plans would weigh on the world's fourth-largest economy.

Yoshinobu Tsutsui, head of Japan's biggest business lobby Keidanren, also lamented Komeito's decision and said he was worried about political instability.

”With urgent policy challenges piling up at home and abroad and key diplomatic engagements imminent, political stability is indispensable. In this context, it is truly regrettable that Komeito has made this announcement,” he said.

CHALLENGE FROM OPPOSITION

With Komeito gone, Takaichi may seek to broker alliances with other parties such as the centre-right Innovation Party.

But they may think twice, said James Brown, a political science professor at Temple University Japan.

"This is in all likelihood going to be an unpopular and potentially very short-lived government, given the real weaknesses going into it. Do you want to tie your party to that?"

Meanwhile, the main opposition Constitutional Democratic Party has suggested it may support the charismatic leader from another opposition party Yuichiro Tamaki as a candidate to challenge Takaichi for the premiership.

Tamaki, head of the populist Democratic Party for the People, said in a post on X that he was "prepared to serve as Prime Minister" and was deeply honoured by the CDP's support.

Opposition parties can put forward their own candidates when parliament meets to vote on the next premier.

Any candidate who secures a simple majority in the first round wins approval. If not, the two candidates with the most votes go into a run-off.

Together the CDP and DPP control 175 seats in the lower house. The LDP is the largest party with 196 seats, 37 short of a majority.

Takaichi's selection as LDP leader last week dampened market expectations for a near-term interest rate hike, sending stocks higher and weakening the yen. She is known for her staunch support of former Prime Minister Shinzo Abe's "Abenomics" stimulus policies.

"If opposition parties and Komeito team up to choose Tamaki as leader, that will create an administration consisting of an opposition alliance," said Takahide Kiuchi, an economist at Nomura Research Institute. "The recent market moves that have priced in Takaichi's economic policy will be rolled back."

Komeito's Secretary General Makoto Nishida told a press conference Japan had entered an "era of the multi-party system" and that his party would strive to become "the axis of centrist, reform-oriented political forces."

Komeito, a socially liberal party affiliated with a lay Buddhist organisation, had also criticised Takaichi's tough language on foreigners and visits to the Yasakuni Shrine - seen by neighbours as a symbol of Japan's past militarism.