Japan's Finance Minister Yoshihiko Noda postponed a reported plan to announce on Tuesday his bid to replace unpopular Prime Minister Naoto Kan, saying he would focus on confronting global financial market turmoil.

Japanese media said Noda, who favors raising the sales tax to fund bulging social security costs, had intended to announce his candidacy for a party leadership race at a meeting of Democratic Party allies later in the day.

The Sankei newspaper also said Noda would quit his post after parliament passes a bill allowing the government to borrow more, a move that would raise pressure on Kan to resign.

Noda, however, told reporters he would not declare his candidacy on Tuesday. Right now is a very important period and I will properly fulfill my duties, he said.

Noda has been expected to run in the Democratic Party election once the unpopular Kan resigns. But global economic concerns and worries about the impact of a strong yen on the world's third-largest economy forced him to delay his move, a political source said.

It would be politically difficult to announce his candidacy in this situation, the source said, noting the original timing meant to precede publication of a policy statement in a monthly magazine due out on Wednesday.

Kan, under fire for his handling of the nuclear crisis at a tsunami-crippled power plant and voter ratings sagging at well below 20 percent, has said he will hand over to his Democratic Party's younger generation. But he has not specified when, and rivals in his party appear to be growing frustrated.

Already Japan's fifth premier in as many years, Kan has set three conditions for keeping his pledge to resign -- and some wonder whether he will quit even once those are met.

One of those conditions, the enactment of an extra budget to help fund recovery from the massive March earthquake and tsunami, has already been met.

Progress was made on Tuesday on a second condition -- enactment of a bill allowing the government to borrow more to fund this year's $1 trillion budget.

Jiji news agency said the Democratic Party's secretary general had agreed to opposition demands to change key spending pledges, clearing the way to pass the bond issuance bill.

Kan, who is advocating Japan wean itself from reliance on nuclear power, also wants parliament to pass a law promoting renewable sources of energy such as solar power before he quits.

POLITICAL SILLY SEASON?

If Noda or other key cabinet ministers resigned, it would boost pressure on Kan to keep his promise even if the two bills are not enacted before the end of the current parliament session on August 31.

The scenario is that Noda, (Trade Minister Banri) Kaieda, and (Transport Minister Akihiro) Ohata all resign together, independent political analyst Hirotaka Futatsuki said. Then they bring forward the party leadership vote.

Not everyone was convinced the script would play out, especially in light of the latest bout of global financial turmoil sparked by Standard & Poor's sovereign ratings downgrade of the United States.

It is August and the silly season in Japanese politics, but it probably won't happen, said Jeffrey Kingston, director of Asian studies at Temple University's Japan campus.

Noda, 54, has played a key role in mapping out Japan's reconstruction after the devastating earthquake and tsunami in March, and in coordinating policy with its G7 partners to tackle the latest global financial crunch.

He is also advocates raising the 5 percent sales tax to help rein in a public debt now twice size of the $5 trillion economy.

It is vital to promote healthy finances before falling into crisis, Noda wrote in a draft of the article to be published on Wednesday, in which he also urges stronger U.S.-Japan security ties and expresses concern about China's military buildup.

Some analysts have expressed hope that replacing Kan, whose policy flip flops and abrasive personality have irked both ruling and opposition lawmakers, would allow smoother cooperation in parliament, where the opposition controls the upper house and can block legislation.

Others were pessimistic about any breakthroughs as Japan struggles with debt, a fast-aging population, rebuilding from the March disasters and crafting a new energy policy in the wake of the nuclear crisis.

The opposition has zero interest in cooperating. They want to discredit whomever is in power by not cooperating, Kingston said. They want to bring down the government and have an early election.

A lower house election is not mandated until late 2013.

(Additional reporting by Tetsushi Kajimoto and Kiyoshi Takenaka; Editing by Ed Lane)

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