By Kaori Kaneko and Tetsushi Kajimoto
TOKYO (Reuters) - Under pressure to keep a promise made months ago, Japanese Prime Minister Yoshihiko Noda said on Wednesday he would dissolve the lower house on Friday for a snap election next month, which his party looks certain to lose.
With an agreement to speed through bills needed to fund 40 percent of budget spending already assured and opposition parties ready to back voting reforms - Noda conditions for calling an election - Japan looks set to end months of political bickering over the timing of the election.
The lower house term ends in August 2013, but the opposition has been using its control of parliament's upper house, where it can block legislation, to force Noda to hold a vote sooner.
In August, Noda promised to hold a vote "soon" in return for opposition backing for his signature sales tax increase, aimed at curbing Japan's ballooning debt.
"I want to carry out a dissolution (of the lower house) on the 16th," Noda said in response to questions from an opposition leader, adding the move was conditional on opposition help on the key bills.
If the lower house is dissolved, a vote must be held within 40 days. Kyodo news agency reported earlier on Wednesday that Noda had told his party's No. 2 of his intention to hold a lower house election on December 16.
Former Prime Minister Shinzo Abe, leader of the main opposition Liberal Democratic Party (LDP) and most likely Japan's next leader, signaled his party was willing to cooperate not only on the financing bill but also on reforms to address disparities between rural and urban voting districts as well as reduce the number of lower house seats.
"We've already promised in our campaign pledges that we'll carry out the cut (in the number of lower house lawmakers) and electoral system reform in the regular parliament session next year. Let me repeat that promise here," Abe told Noda in a debate in a parliamentary committee.
Noda is already Japan's sixth prime minister since 2006 and the third since his Democratic Party of Japan (DPJ) swept to power in 2009 promising to change how Japan is governed after more than half a century of nearly non-stop LDP rule.
But support for the Democrats has plummeted since then due to policy confusion and political stalemate and many in Noda's party would prefer to delay the election date.
The likely vote will come at time when Japan's economy is sliding back into recession and its relations with China are the chilliest in decades following a flare-up in tensions over a disputed island chain.
Abe has called for Japan to adopt a tougher line against China, though during his term as prime minister in 2006-2007 he was credited with improving relations with Beijing.
He would likely lean even harder than the current government on the Bank of Japan to help kick-start the world's third-largest economy with aggressive monetary stimulus.
With LDP leading in opinion polls and Abe in pole position to become premier again, the news that the long mooted election appeared imminent prompted a yen selloff.
"Abe has been calling for aggressive monetary easing. The key would be who he will select as economics minister, and who he will appoint as new BOJ governor," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
The election could be positive for the economy overall if it produced a more stable government and more consistent policymaking, he said.
However, opinion polls suggest that the LDP and its tradition ally, New Komeito party, may fall short of a majority.
Political analysts say that such a scenario might give a coalition role to new, untested forces such as a party led by populist Osaka mayor Toru Hashimoto, possibly leading to more policy paralysis and confusion.
(Reporting by Shinichi Saoshiro and Tetsushi Kajimoto; Writing by Tomasz Janowski: Editing by Linda Sieg and Neil Fullick)
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