Former Foreign Minister Taro Aso leads the race to become Japanese Prime Minister, analysts and media said yesterday, after unpopular Yasuo Fukuda became the second leader to abruptly resign in less than a year.

With a policy vacuum threatening an economy teetering on the brink of recession, 67-year-old Mr Aso said he was a suitable candidate to head the country.

If he wins the leadership in what would be his fourth attempt, the former Olympic sharpshooter and comic-book fan will be Japan's 11th Prime Minister in 15 years.

"I think (Mr Fukuda) felt he had work that was left undone, and he said he wanted it to be carried out," Mr Aso told a news conference, ahead of a leadership vote in three weeks.

"As someone who discussed these issues with him, including the economic package, I think I have the credentials to take that on," said the veteran lawmaker, currently LDP secretary-general.

Japan's Nikkkei share average fell 1.8 per cent on foreign nervousness that a second Japanese leader seemed to have just given up the job. Government bond futures jumped, despite analysts warning a Mr Aso government might seek to spend Japan's way out of its economic woes.

Mr Fukuda, 72, had been struggling to cope with a divided Parliament where opposition parties have the power to delay legislation, and his sudden exit raised questions about his conservative party's ability to cling to power or even hold together after ruling Japan for most of the past 53 years.

He produced an economic package last week, with a promise of tax cuts and €11 billion in new spending this year to help ease the pain of high oil and food prices, but only saw his government's ratings slide further.

Mr Aso is seen as the LDP's best bet to rebuild voter support. However, some analysts note the same was said when he lost to Mr Fukuda in the LDP's last leadership race last year, when previous Prime Minister Shinzo Abe also suddenly quit.

The departure of Fukuda, a moderate conservative who favours close ties with Japan's Asian neighbours, does not automatically mean an early election as the LDP dominates Parliament's lower house, which will vote on the leadership.

However, the next Prime Minister might go to the polls ahead of a deadline of September next year to take advantage of any recovery in public support.

A complete deadlock in Parliament, where the opposition controls the upper house and can stall legislation, could also force the Prime Minister to call an election reluctantly.

The ruling coalition is almost certain to lose seats, if not its majority, in an election but voters say they want a turn to pick their government.

"As two LDP Prime Ministers resigned in a row, I think it is necessary to call a general election within this year," said Chika Hasegawa, 45, a patent agency employee.

"The LDP is now in tatters, why not let the Democratic Party take charge and see how it goes."

If the LDP passes over the outspoken Mr Aso again, other potential leadership contenders are economics minister Kaoru Yosano, known for his commitment to fixing Japan's tattered finances, and conservative Yuriko Koike, who was briefly last year the country's first female defence minister.

Popular female lawmaker Seiko Noda, 47 and currently the minister in charge of consumer affairs, has also been mentioned as a possible fresh face at the top.

Analysts said the next LDP Prime Minister would face similar woes to Mr Fukuda, given the Parliamentary deadlock and the party's rusting political machine and scandal-tainted image.

While they initially shrugged off the now familiar scenario of no national leader, market analysts said Japan's stock and bond markets would likely sag after Mr Fukuda's departure, as it raised doubts over policy paralysis and may spur debt-funded spending.

Japan's economy shrank in the second quarter and is widely seen as heading for a recession, prompting Mr Aso to suggest delaying efforts to ease the government's sky-high debt - the highest in the OECD - and seek instead to stimulate the economy. That would likely mean issuing more government debt to pay for new spending, putting pressure on bond yields.

Possible candidates to run for next Japan PM

Following the resignation of Prime Minister Yasuo Fukuda, Japan's ruling Liberal Democratic Party is in search of a new leader to help it retain its grip on power.

Below are some senior LDP lawmakers seen as possible candidates to replace Mr Fukuda apart from Tarso Aso:

Kaoru Yosano, 70, a veteran conservative politician, was tapped as economics minister in Mr Fukuda's cabinet reshuffle and led the government's efforts to compile an economic package last week.

Asked about the possibility of running for the top post, Mr Yosano said he was "not thinking about anything yet".

He is seen as a fiscal conservative and a vocal advocate of a higher consumption tax rate to restore battered public finances. Mr Yosano and his fellow LDP lawmakers published a report in June that said the sales tax rate needed to be doubled from five per cent to at least 10 per cent by around 2015.

Grandson of two well-known poets and a graduate of the prestigious University of Tokyo, Mr Yosano started his political career in 1968 by joining the office of Yasuhiro Nakasone, who was Prime Minister in the 1980s.

Yuriko Koike, 56, a former TV announcer who is fluent in English and Arabic. She served briefly as Japan's first woman defence minister last year as well as a national security adviser to then-Prime Minister Mr Abe.

As environment minister, she launched a Cool Biz campaign to encourage office workers to dress more casually in summer to cut down air-conditioner use and help fight global warming.

While Mr Aso is seen as the most likely candidate to succeed Mr Fukuda, Japanese media have reported that some within the LDP are pushing forMs Koike, among them party heavyweight Hidenao Nakagawa.

She has a record of switching parties. Her career began in the opposition and she was once a protege of Ichiro Ozawa, now leader of the main opposition Democratic Party.

Seiko Noda , 48, was appointed posts and telecoms minister at 37 and tipped early in her career as having the potential to be Japan's first female Prime Minister. Ms Noda lost prominence after speaking out against postal reforms by then-Prime Minister Junichiro Koizumi.

She left the LDP to stand as an independent in a 2005 election called by Mr Koizumi to resolve the subsequent row that split the party, but returned to the fold as consumer affairs minister in Mr Fukuda's cabinet.

She has been leading preparations to create a new agency overseeing consumer safety affairs after a public outcry over a series of food safety scandals.

She has called for fiscal reform to rein in public debt, arguing that semi-governmental agencies should stop issuing zaito bonds to finance fiscal investment and loan programmes, thus freeing up more money for investment in the private sector.