Volkswacht Bodensee - Japan's next PM aims for snap election, stocks sink

Ishiba, who was set to be formally appointed as premier on Tuesday after winning the leadership of the ruling party, supports the Bank of Japan's drive to hike interest rates and has said "there is room" to raise corporate levies.

The leadership contest for the Liberal Democratic Party (LDP), which has governed almost uninterrupted for decades, went down to the wire on Friday, with right-winger Sanae Takaichi tipped to win when markets closed.

With Takaichi a fan of former prime minister Shinzo Abe's unorthodox "Abenomics" economic policies of ultra-low interest rates and tax cuts, the prospect of her winning sent stocks higher and the yen lower.

Takaichi, an arch nationalist, would also have been the first woman prime minister in a country where men still dominate politics and business.

Ishiba, 67, is a fierce critic of Abe and his last-gasp victory -- on his fifth attempt -- sent the yen soaring to around 142 per dollar from around 146.50. Investors dumped stocks on Monday, with exporters among the worst hit.

The Nikkei index closed down 4.8 percent, with Toyota tumbling 7.6 percent and real estate company Mitsui Fudosan off 8.7 percent.

Ishiba confirmed on Monday media reports that he aimed to call snap elections for October 27, saying it was "important for the new government to be judged by the people as soon as possible".

LDP elders are banking on Ishiba, a self-confessed defence "geek" fond of making model ships and planes, to boost the party's popularity.

Its poll ratings fell sharply under outgoing premier Fumio Kishida, hit by a damaging party slush fund scandal and anger over rising prices.

- Defence ties -

Ishiba vowed on Friday to restore confidence in the LDP after the scandal and to shore up defence ties among neighbours rattled by recent Chinese actions.

He is considering appointing as finance minister Katsunobu Kato, a former chief cabinet secretary who ran in the LDP leadership race, media reports said.

Gen Nakatani, a veteran former defence minister, will return to his old job while Takeshi Iwaya, another former defence minister, will come in as foreign minister, the reports said.

Kishida pledged to double defence spending and deepen military cooperation with the United States and other allies in the region rattled by China's rise and an unpredictable North Korea.

Ishiba backs the creation of an "Asian NATO" and has said Japan should respond more strongly to Chinese or Russian breaches of its airspace or waters, as has happened repeatedly in recent weeks.

But questions remain over how the government plans to pay for the upgrade and also find enough recruits for the military among Japan's shrinking population.

Taro Saito, senior economist at NLI Research Institute, told AFP that Ishiba has so far focused on how to improve public finances in Japan, which has one of the world's highest debt mountains.

"He seems not so interested in policies to boost economic growth, although what is most important for Japan is low growth rather than fiscal health," Saito said.

Chief cabinet secretary Yoshimasa Hayashi, who is reportedly set to remain under Ishiba, declined to comment on Monday on the fall in stocks but said the government would "make judgements with calm heads".

"We will continue closely watching trends in financial markets at home and abroad with a sense of vigilance and, while cooperating closely with the Bank of Japan, we will do our best in management of the economy and finance," he said.

L.Meier--VB