Japanese Finance Minister Yoshihiko Noda will run in a party leadership race to replace Prime Minister Naoto Kan and may resign his cabinet post in coming weeks to boost pressure on the premier to step down, the Sankei newspaper reported on Tuesday.

Other Japanese media also said Noda, a fiscal hawk who favors raising the sales tax to fund bulging social security costs, would state his intention to run in a Democratic Party leadership race, but did not mention any plan to resign.

Speaking to reporters on Tuesday as Asia stock markets nosedived on growing concerns about debt crises in the United States and Europe, Noda stopped short of commenting on whether he will run in the leadership race, saying only that he will fulfill his duty as a member of Kan's cabinet.

Noda has been widely expected to run in a party leadership election once Kan resigns, but the timing of the expected announcement and report of his possible resignation jarred, given the global stock market rout and worries about the impact of a strong yen on the world's third-largest economy.

Japanese politicians are putting priority on domestic politics. Their top priority is to force Kan to resign and break through the current political stalemate, said independent political analyst Hirotaka Futatsuki.

Kan, his voter ratings sagging at well below 20 percent, has said he will hand over to his Democratic Party's younger generation but has not specified when, and rivals in his party appear to be growing frustrated.

Kan, already Japan's fifth premier in as many years, has set three conditions for keeping his pledge.

One condition, the enactment of an extra budget to help fund recovery from the massive March earthquake and tsunami, has already been met. But the outlook is cloudy for the other two -- passage of a bill to allow the government to borrow more to fund this year's $1 trillion budget and approval of a law to promote renewable sources of energy such as solar power.

If Noda or other key cabinet ministers resign, that would boost pressure on Kan to keep his promise even if the two bills are not enacted before parliament's session ends on August 31.

The scenario is that Noda, (Trade Minister Banri) Kaieda, and (Transport Minister Akihiro) Ohata all resign together, Futatsuki said.

Then they bring forward the party leadership vote.

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

He is also the voice of fiscal discipline in the ruling party and advocates raising the 5 percent sales tax to help rein in a public debt that has grown to twice the size of the $5 trillion economy.

Noda is expected to express his intention to run in the leadership race later on Tuesday, the Sankei newspaper and other media said, citing sources close to Noda.

(Editing by Michael Watson and Chris Gallagher)

Japan