TOKYO - Japan's new leader, Naoto Kan, will pick a fellow fiscal conservative for the key finance minister post and a critic of an unpopular powerbroker as his party is No. 2 in a bid for voter support in an election next month.

Kan, Japan's fifth leader in three years, has improved his Democratic Party's chances to win an upper house election to avoid policy paralysis, and raised investor hopes that he will rein in a public debt that equals twice the country's GDP.

Support for the Democratic Party of Japan (DPJ) has jumped since it voted in Kan on Friday to replace Yukio Hatoyama, who quit as premier after just eight months in office, his ratings shredded by indecision and broken promises.

A voter survey by the Mainichi newspaper showed 63 percent had positive expectations for Kan's new government, to be launched on Tuesday. That was in line with other surveys.

Thirty-four percent planned to vote for the DPJ in an upper house election expected in July that the ruling bloc needs to win to avoid policy paralysis as Japan struggles to rein in a huge debt and sustain growth despite a fast-ageing population.

That was a rise from 22 percent last month and twice the figure for the opposition Liberal Democratic Party (LDP), ousted last year in a historic election that ended more than 50 years of almost non-stop rule by the conservative party.

Hopes that Kan, a former grassroots activist, will tackle Japan's massive public debt will be bolstered by his promotion of deputy finance minister Yoshihiko Noda to the top finance portfolio, since Noda agrees that fixing tattered state finances is vital.

Kan told reporters late on Saturday that he had asked National Strategy Minister Yoshito Sengoku to be chief cabinet secretary - a critical position - and media said he would probably make fiscal reformer Koichiro Genba DPJ policy chief.

Both are positive about raising Japan's 5 percent sales tax in the future to fund the bulging costs of an ageing society and to reduce dependence on borrowing to fund spending.

"We promised not to raise the sales tax until the next general election so we cannot. But after the next general election, we must speedily carry out drastic tax reform including the sales tax and we must state that in our manifesto for the upper house election," Genba said in a TV debate.

An election for the lower house must be held by late 2013.

Change in party No. 2

Kan also said he would appoint administrative reform minister Yukio Edano to replace campaign strategist Ichiro Ozawa as party secretary-general, the party's No 2 executive.

It was the latest sign that Kan is distancing himself from the powerful but scandal-tainted lawmaker.

The extent of Ozawa's influence matters not only to voters worried that he is reviving the pork-barrel spending and vested interest politics perfected by the LDP during its half-century rule, but to financial markets concerned about Japan's debt.

"We must show the markets that our finances are sustainable," Genba said in a TV debate with opposition party lawmakers.

Ozawa, who leads the largest bloc of lawmakers in the Democratic Party, has opposed a clear statement on the sales tax ahead of the upper house election for fear of losing votes.

Reuters