Japanese Prime Minister Naoto Kan offered to resign once he had dealt with the worst of the country's nuclear crisis and tsunami disaster, cutting a deal with party rebels to avert defeat in a parliamentary no-confidence vote on Thursday.
Kan's offer to step down, probably in the autumn, was made just hours before the vote was due to take place and gives him time to prepare an extra budget to pay for the rebuilding cost of the March 11 disaster.
Kyodo news agency said the no-confidence motion was now certain to be voted down.
But even if he stays in office a few more months, a weakened Kan will struggle to forge deals with a feisty opposition in a divided parliament and may not be able to make much progress on tax and social security reforms needed to contain the country's bulging public debt.
"From both Japanese and foreign investors' point of view, now is not the time for political turmoil," said Yasuo Yamamoto, a senior economist at Mizuho Research Institute.
"Japan has various issues it needs to address swiftly — not only reconstruction, but also tax and social security reform, TPP (Transpacific Partnership trade initiative) and an energy policy which requires political initiative."
Speaking shortly before the vote later in the day, Kan told ruling Democratic Party of Japan (DPJ) lawmakers he would step down later. He gave no firm date.
"I would like for the younger generation to take over various responsibilities once I fulfill certain roles that I need to, as I work on handling the disaster," a solemn Kan told the gathering.
Some ruling party rebels, fearing Kan's dismal ratings were becoming a liability, had said they wanted him out sooner.
However, his predecessor, Yukio Hatoyama, told the MPs he agreed with the prime minister's plan to step down after the outlook for an extra budget to fund rebuilding from the tsunami was clear. That would probably be around August or September.
Hatoyama, who leads a major group in the ruling party, had earlier said he would back the no-confidence motion. His agreement to the deal looked likely to turn the tide in favor of the beleaguered and deeply unpopular premier.
Other potential rebels also told the gathering they were in favor of party unity, and Jiji news agency said that members of a DPJ group led by party powerbroker Ichiro Ozawa would now vote against the motion.
Ozawa, a veteran strategist known for shaking up politics in the past, had earlier threatened to side with the opposition.
Kan, who took office almost exactly a year ago, is battling to control a radiation crisis at the Fukushima plant, while trying to figure out how to pay for rebuilding the northeast region devastated by the tsunami triggered by the quake, and prepare tax reforms to pay for rising social security costs.
Japanese voters are likely to welcome the deal since a majority want Kan to leave, but not in the middle of a crisis.
The opposition would need the backing of around 80 of the 305 lower house members from Kan's party to pass the motion in the 480-seat chamber and force Kan to resign or call a snap election.
A lower house session to vote on the motion was to open at 1 p.m. (0400 GMT), with the vote expected around 3 p.m. (0600 GMT) after speeches for and against the motion.
The uncertain outlook has been keeping financial markets on edge. Lead 10-year Japanese government bond futures rose above 141.17 to a six-month high after Kan hinted he may step down on hopes that it will allow for a smooth transfer of power and prevent political turmoil.
But the breathing space for Kan probably dampens short-term prospects for a "grand coalition" between the Democrats and their biggest rival, the Liberal Democratic Party (LDP), disappointing those who had hoped a new grouping could break the parliamentary logjam.
"Because Kan is not stepping down (immediately), the grand coalition … is not going to happen until (at least) July, so until July the discussion on a large-scale supplementary budget won't make progress," said Takuji Okubo, chief economist at Societe Generale Corporate & Investment Banking.
