Japanese Prime Minister Yoshihiko Noda prevailed in a ruling party leadership vote and now faces a decision on whether to call elections as he grapples with a slowing economy and a territorial spat with China.

Noda’s win in today’s Democratic Party of Japan contest allows him to remain premier because the DPJ controls the more powerful lower house of parliament. The main opposition Liberal Democratic Party chooses its leader next week, increasing pressure on Noda to sell himself to voters ahead of an election he must call by August 2013.

The country’s sixth leader in as many years must now win approval for a bill to fund this year’s budget amid concern the economy may contract as it struggles to recover from last year’s earthquake and nuclear disaster. With the public split over his sales tax increase, Noda also faces the threat of an insurgent political force led by Osaka Mayor Toru Hashimoto.

“The leadership race was a distraction,” said Ellis Krauss, a professor of Japanese politics at the University of California, San Diego. “Noda’s problem is convincing the public that the consumption tax hike was necessary and dealing with a recalcitrant opposition, deciding when to call an election, changing nuclear energy policies, and a troublesome China.”

Noda won 68 percent of the vote today, defeating former internal affairs minister Kazuhiro Haraguchi, and ex-farm ministers Hirotaka Akamatsu and Michihiko Kano.

Since taking office in September of last year, Noda won approval for a bill to double the consumption tax to 10 percent by 2015. In return for opposition backing for the levy, he shelved many of his party’s election pledges, such as providing minimum pension benefits, and promised to call an election “soon.”

DPJ Defectors

Lawmakers opposed to Noda’s compromises defected from the party, threatening its majority in the lower house. A Yomiuri newspaper poll published Sept. 18 showed 31 percent of respondents planned to vote for the LDP in the proportional representation section of the next election, compared with 14 percent for Noda’s DPJ and 16 percent for Hashimoto’s party.

“Noda has not been able to sell his accomplishments in a way that gets through to the public,” said Steven Reed, professor of political science at Chuo University in Tokyo. “He does have accomplishments and supporters of the Democrats are perfectly aware of that, but it’s not clear to anybody else.”

Noda may shuffle his cabinet and party leadership positions by the end of the month, replacing DPJ Secretary-General Azuma Koshiishi, the Nikkei newspaper said today, without citing anyone. Potential replacements for Koshiishi include Finance Minister Jun Azumi, Deputy Prime Minister Katsuya Okada and policy chief Seiji Maehara, the newspaper said.

Hashimoto’s Rise

Hashimoto has won backing of seven members of parliament, enabling him to register his group as a political party. The former lawyer and television commentator said he plans to field candidates across the country in the next election, without running for a parliamentary seat himself.

Meanwhile, Noda faces challenges including the phasing out of atomic power and the risk the government will run out of money because of a parliamentary deadlock over financing. The world’s third-largest economy, which contracted last year after the earthquake and Fukushima nuclear disaster, grew at half the pace initially estimated in the second quarter.

“Sooner or later he will have to face the electorate,” said Koichi Nakano, a professor of political science at Sophia University in Tokyo. “For them he is a much-disliked incumbent. He needs to convince them that he’s better than the alternative.”

LDP Race

Much will depend on the stance taken by the new head of the LDP, set to be selected on Sept. 26, Nakano said. LDP candidates include current Secretary-General Nobuteru Ishihara, former defense minister Shigeru Ishiba and ex-premier Shinzo Abe.

Noda must also carefully navigate the re-ignited territorial row with China, said Alessio Patalano, a lecturer in war studies at King’s College in London. The government last week completed a deal to purchase islands in the East China Sea known as the Senkaku in Japanese and Diaoyu in Chinese, setting off protests throughout China that have imperiled a $340 billion trade relationship. 
“Basically what they can try to do is establish a hot line to the Chinese government,” Patalano said. “There is nothing to be gained at this stage by Japan having its constabulary or military forces be any louder than they are.” (Bloomberg)