Japan's ruling coalition splits, throwing Takaichi's PM bid into doubt

By Kantaro Komiya and Tim Kelly

TOKYO (Reuters) -Japan's ruling coalition broke up on Friday, with junior partner Komeito rebelling against the Liberal Democratic Party's new hardline leader Sanae Takaichi in a move that casts doubt over her premiership bid.

Takaichi, selected by the LDP as its new head in a weekend vote, must win approval in parliament to become Japan's first female prime minister later this month.

While her party holds the largest number of seats, it is short of a majority, and the main opposition party has called for other parties to rally behind an alternative candidate.

Komeito leader Tetsuo Saito told party members that the 26-year partnership had broken down over an "inadequate" explanation by the LDP over its handling of a political funding scandal that has dogged the ruling group for years.

He said Komeito would not back Takaichi in the parliamentary vote on the next prime minister, originally expected to he held around October 15 but likely to be pushed back by the hiatus.

The LDP is 37 seats short of a majority in parliament's lower house.

Opposition parties can put forward their own candidates when parliament meets to vote on the next premier.

Any candidate who secures a simple majority in the first round wins approval. If not, the two candidates with the most votes go into a run-off.

The yen, which fell to an eight-month low earlier this week on the prospect of Takaichi's expected fiscal largesse, strengthened as much as 0.5% to 152.38 per dollar.

CHALLENGE FROM OPPOSITION

With Komeito gone, Takaichi may seek to broker alliances with other parties including the fiscally-expansionist Democratic Party for the People (DPP).

But the main opposition Constitutional Democratic Party has suggested it may support the DPP's charismatic leader Yuichiro Tamaki as a candidate to challenge Takaichi for the premiership.

Takaichi's selection as LDP leader last week dampened market expectations for a near-term interest rate hike, sending stocks higher and weakening the yen. She is known for her staunch support of former Prime Minister Shinzo Abe's "Abenomics" stimulus policies.

"If opposition parties and Komeito team up to choose Tamaki as leader, that will create an administration consisted of an opposition alliance," said Takahide Kiuchi, an economist at Nomura Research Institute. "The recent market moves that have priced in Takaichi's economic policy will be rolled back."

Komeito’s No.2 official, Secretary General Makoto Nishida, told a press conference, Japan had entered an "era of the multi-party system" and that his party would strive to become "the axis of centrist, reform-oriented political forces."

The LDP, which has governed Japan for most of the postwar period, also has a minority in the less powerful upper house of parliament.

(Reporting by Makiko Yamazaki, Kantaro Komiya, Leika Kihara and Tim Kelly; Writing by John Geddie; Editing by Kim Coghill and Kate Mayberry)