TOKYO, Japan - 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 governing centre-left Democratic Party of Japan (DPJ) comes as its economic recovery is slowing, Japan's debt mountain is growing and exports are threatened by the yen trading near a 15-year high.

The 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 the "Destroyer" for his record of creating and splitting minor parties.

If Ozawa wins, he will become the nation's sixth premier in four years.

Kan, 63, 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 because he had mentioned the prospect of tax hikes.

Although Ozawa is unpopular with voters because of campaign funding scandals, in which he 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.

Kan, who has been in office only three months, was widely believed to keep pushing for 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.

On foreign policy, he signalled he may reopen a controversy over an unpopular US airbase on the southern island of Okinawa that has strained ties with Washington and angered local residents.

Hatoyama had pledged to move the base off Okinawa but months later relented to US pressure and agreed to relocate it within Okinawa as originally agreed with Washington in 2006 -- a flip-flop that led to his June resignation.

Ozawa said in brief comments Wednesday that, while he values the US alliance, he wants "to hold talks with the US government, aiming at a conclusion that both Okinawa's people and the US government can accept."

On Japan's currency vows, Ozawa said the government should intervene in financial markets to stop the yen's rise, which has made exports less competitive and reduced repatriated corporate earnings.

"The market is carefully watching the election, while market players are still divided over who can contribute to the Japanese economy better," said Masatoshi Sato, strategist at Mizuho Investors Securities.

Politics professor Shinichi Nishikawa said "the election will open a new chapter for the DPJ. The party is to face a crucial test for stable power."

"This election may be the last challenge by Ozawa, who has often controlled power without becoming prime minister," said Nishikawa of Meiji University. "For Kan, who seeks long-term rule, it is a major hurdle he has to clear."