It was only two weeks ago that Prime Minister Naoto Kan seemed on the verge of stepping down — his foreign minister, Seiji Maehara, had resigned, his popularity was at a historic low and a divided Diet had given him little hope of passing bills needed to enact the 2011 budget.

But the massive earthquake and tsunami on March 11 swept away all of that.

Now observers say the Democratic Party of Japan leader is well-placed to survive for several more months because opposition boycotts in the legislature won’t be tolerated by a nation in need of unified leadership during its worst postwar disaster.

Kan is facing daunting fiscal challenges as he seeks to squeeze out huge budget resources for reconstruction and may have to drastically change his election promises.

In addition, the ceasefire between the ruling and opposition camps may just be temporary because the opposition has turned down Kan’s proposal to form a “grand coalition” with the Liberal Democratic Party, the largest opposition force.

“It is Kan’s responsibility to compile and pass necessary legislation to rebuild the Tohoku region,” political commentator Hirotada Asakawa said. “But once that is settled, he may be forced to dissolve the Lower House for a snap election or resign.”

That could provide another chance to form a grand coalition, Asakawa said.

“If Kan steps down, it may be a good opportunity for the ruling and opposition parties to create a grand coalition and tackle the disaster together,” said Asakawa. “The divided Diet will be resolved and politics will stabilize.”

LDP leader Sadakazu Tanigaki sank the idea when he flatly turned down Kan’s offer to join the Cabinet as minister in charge of reconstruction.

“The offer came out of the blue,” Tanigaki said. “Asking me, the party president, to join the Cabinet means he is offering to create a new coalition. If that is the case, there should first be a discussion on policies.”

Now Kan needs to focus more than ever on disaster relief and rebuilding. Yet, to scrape up the trillions of yen in resources needed for reconstruction, he may need to give up and rewrite most of his party’s campaign promises.

According to a government estimate released Wednesday, rebuilding social infrastructure, including roads, ports, factories and houses damaged by the disaster, will cost up to ¥25 trillion.

Disaster-related expenses are expected to balloon with the nuclear crisis in Fukushima Prefecture, which is forcing farmers to destroy vegetables and milk because of radiation contamination. The government and Tokyo Electric Power Co. are expected to shoulder the compensation costs together.

The government is planning to allocate ¥200 billion in reserves from the 2010 budget and ¥1.16 trillion from the budget for the fiscal year starting in April. But these stashes will fund only a portion of the money needed for reconstruction.

“We will review our entire expenditures, not only what was in the campaign pledge,” Katsuya Okada, the DPJ’s secretary general, said earlier this week.

In addition to its key policies — monthly child allowances, toll-free highways, free high school tuition and income compensation for farmers — pay cuts for civil servants and lawmakers are also likely to be targeted, Okada said.

Okada also said that any supplementary budget to fund the rebuilding of disaster-hit Tohoku needs to be drafted in at least two stages.

“We are considering compiling the first extra budget from April to May, which will focus on funding measures immediately necessary, including clearing out the rubble and building makeshift housing,” Okada said.

“We will compile a full-scale extra budget after a while,” when the details of the plan are mapped out.

Diet deliberations on the budget and other bills resumed Tuesday after being effectively thrown into recess last week as the disaster unfolded.

While the opposition parties say they will provide all-out support for the legislation and extra budgets needed for the crisis, they take a much cooler attitude when it comes to the actual budget and its related bills.

The main budget cleared the Lower House on March 1, ensuring it will clear the Diet by the end of this fiscal year on March 31. Even if it is voted down in the opposition-controlled Upper House, the decision of the Lower House, which is in the hands of the ruling coalition, holds sway.

The fate of the related bills, however, is still up in the air. The ruling party needs a two-thirds majority in the Lower House to override a rejection by the Upper House.

Since there’s little chance the opposition will let the budget-related bills clear the Diet, new bills are being submitted that will allow the government to extend some of the policies set to expire at the end of this month as a stopgap measure.

After an agreement with the ruling parties, the LDP and Buddhist-backed New Komeito submitted a stopgap bill for a three-month extension of tax cuts to the Diet.

The two opposition parties, however, are reluctant to support a similar bill to extend monthly child allowance payments by six months that was submitted by the DPJ and Kokumin Shinto (New People’s Party), claiming these resources should be allocated to disaster relief.

If the existing bill fails to clear the Diet by March 31, previous child subsidies with income ceilings that pay out less will be revived.

Experts say that would force municipal governments, which changed their systems last year to begin providing child allowances, to make changes once again.

Throughout the turmoil, with both eastern Japan and the political nerve center Nagata-cho in crisis, Kan has kept a low profile and stayed out of the limelight.

Until Friday, Kan had gone a week without holding a news conference, leaving reporters baffled and analysts yearning to know what is going through the leader’s mind.

Asakawa pointed to Kan’s March 12 actions, when he visited Fukushima by helicopter to view the crippled power plant the day after the disaster, as indicative of his mindset.

“It is a basic theory that the top leader should not visit the site of a disaster right after it occurs,” Asakawa said.

“His actions only lay bare just how much of a panic he is in and that he lacks the ability to manage the crisis.”

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