|Incumbent leader Naoto Kan, right, is facing a tough fight from rival Ichiro Ozawa, left, for the top post [AFP]
Japan's lower house of parliament is expected to hold a vote which could yield the country's third prime minister in a year, and the sixth in three years.
Naoto Kan, the incumbent Japanese prime minister, is being challenged by Ichiro Ozawa, a popular veteran legislator, for the ruling Democratic Party of Japan (DPJ).
Media reports say the outcome will be too close to predict, with as many as 30 party members still undecided ahead of Tuesday afternoon's vote.
The winner will automatically become the prime minister because of the party's parliamentary majority, and refocus the country's fiscal policies.
The party vote on Tuesday comes as Japan battles a strong currency, a weak economy and a bulging public debt.
The DPJ swept to power last year promising change, but could unravel if the vote ends with a political deadlock in parliament.
Kan, 63, who took office three months ago, and rival Ozawa, 68, who has been in parliament for 40 years, have clashed over economic policies.
Kan has vowed to cap spending and debt issuance to rein in a public debt already twice the size of Japan's $5 trillion economy, the second largest in the world after the US.
He also wants to debate raising the five per cent sales tax to fund growing social welfare costs of a fast-ageing population.
Ozawa promised to cut waste to fund party campaign promises to give consumers more cash, pry control over policy away from bureaucrats to re-prioritise the budget, and consider more borrowing to fund stimulus if the economy stumbles.
He pledged steps to curb the yen's rise to 15-year highs, including solo intervention, and could well pressure Japan's central bank to buy government bonds to fund his spending plans.
Kan's team has repeatedly expressed concern about the yen's climb but so far has refrained from stepping into the market.
The DPJ last year ousted the long-dominant Liberal Democratic Party (LDP), ending more than 50 years of nearly non-stop rule by the conservative party.
But it floundered under Kan's predecessor Yukio Hatoyama and the DPJ-led ruling bloc lost its upper house majority in a July election after Kan floated the sales tax rise.
Both Kan and Ozawa have said if they lose they will work to support the other, but some analysts say the leadership battle could split the party and result in a possible realignment of party allegiances.