TOKYO: Japan`s Prime Minister Naoto Kan and his rival, powerbroker Ichiro Ozawa, kicked off a leadership battle Wednesday that threatens to divide the ruling party only a year after it took power.

Their contest to run the centre-left Democratic Party of Japan (DPJ) and the nation comes as an economic recovery is sputtering, Japan`s debt mountain is growing and exports are threatened by the yen trading at a 15-year high.

The two rivals, who both formally declared their candidacy for the September 14 party election, represent the two different wings of the party which a year ago ousted the conservatives after more than half as century in power.

Ozawa, 68, is a veteran powerbroker who years ago defected from the conservative Liberal Democrats and has earned nicknames like "Shadow Shogun" and "Destroyer" for his record of creating and splitting minor parties.

Kan, 63, on the other hand, started his political life as a left-wing grassroots activist and shot to fame when, during a brief stint as health minister, he uncovered official culpability in a HIV-tainted blood scandal.

Both were key figures in the DPJ when it took power in a landmark election on August 30 last year, but they split following the resignation of the DPJ`s first premier Yukio Hatoyama in June, when Kan took over the post.

Kan, on assuming power, snubbed and sidelined Ozawa, who in turn attacked Kan for presiding over a major defeat in upper house elections in July, blaming him for the rout because he had mentioned the prospect of tax hikes.

Although Ozawa is unpopular with voters because of a series of campaign funding scandals, in which he vehemently denies any wrongdoing, he controls the biggest faction within the DPJ, with about 150 out of 412 lawmakers.

He first declared his intention to oust Kan last week and reconfirmed his candidacy Tuesday after last-minute peace talks, brokered by Hatoyama, failed.

Most pundits have shied away from making strong predictions on who will win, while media reported on the looming gladiatorial battle within the DPJ.

"DPJ leadership election divides party in two," said a Nikkei business daily headline. "Kan, Ozawa in one-to-one duel," said the Yomiuri Shimbun.

The two men were scheduled to both address the media in the evening at a joint press conference organised by the party.

Kan was likely to urge the need for further talks on raising the consumption tax to pay for increasing welfare costs and fiscal belt tightening as Japan`s public debt nears 200 percent of gross domestic product.

Ozawa -- a blunt speaker who said last week Americans are "simple-minded" -- was expected to push the DPJ`s more populist promises, which he helped draft ahead of last year`s election, including expanded social welfare.

Major media broadly expressed unease about Ozawa, who stepped down from the party`s number-two post in June amid news of his political fund scandals.

But editorials said it was better to have a party vote than for its leaders to make secret power deals, as Japanese politicians have done in the past.

"If Mr Ozawa is to run, it is better to have an open and fair contest rather than to avoid a head-on collision through negotiations," the Asahi said, warning that DPJ lawmakers must now consider the good of the nation.

"This election in effect decides who is the next Japanese prime minister."

BDST: 0918 HRS, September 1, 2010