TOKYO, JAPAN - Japanese Prime Minister Yukio Hatoyama may have to resign if he fails to resolve a feud over a U.S. airbase by the end of May, a ruling party elder said on Friday, though adding that he believed the premier could solve the problem now eroding his support rates ahead of an election.

Finance Minister Naoto Kan, a fiery party heavyweight who has been pressuring the Bank of Japan to do more to fight deflation, would succeed Hatoyama should he step down, Democratic Party of Japan (DPJ) elder Kozo Watanabe told Reuters in an interview.

During the campaign that swept the Democrats to power last year, Hatoyama had raised the hopes of many in Okinawa in southern Japan that the Marines' Futenma airbase there could be moved off the island, host to the bulk of America's 47,000 military personnel.

But Washington wants to stick to a 2006 deal to shift the facility to a less crowded spot on northern Okinawa.

Voter perception that Hatoyama has been indecisive and mishandled ties with Japan's security ally has helped slice his ratings to under 40 percent in some surveys ahead of an upper house poll the Democrats need to win to avoid policy paralysis.

'If he makes a decision he will be OK but if he cannot decide the people will think that Hatoyama cannot be relied on ... It might mean that he has to (resign),' said Watanabe, who previously has held the post of top adviser to the party.

'I believe Hatoyama will certainly resolve this issue in May in a way that the United States would agree and the people in Okinawa would also have to agree even if they are dissatisfied,' said the 77-year-old former health minister.