Former defence minister Shigeru Ishiba on Friday was set to become Japan's next prime minister after winning a closely fought contest in his fifth and final attempt to lead the ruling Liberal Democratic Party (LDP).

Speaking at a news conference after winning the ruling party's leadership race, Ishiba — who is essentially assured of becoming the next premier because of its majority in parliament — stressed the need for the Japan's economy to fully emerge from deflation.

Revitalising consumption is key for Japan to emerge from economic stagnation, he said, adding the new administration must consider the most effective means to cushion the blow to households from rising inflation.

"I will ensure Japan emerges from deflation," he said, promising to accelerate current Prime Minister Fumio Kishida's policies aimed at boosting household income through wage hikes.

The 67-year-old prevailed over hardline nationalist Sanae Takaichi in a run-off vote in what was one of the most unpredictable leadership elections in decades with a record nine candidates in the field, Reuters reported.

The scramble to replace Kishida was sparked in August when he announced his intention to step down over a series of scandals that plunged the LDP's ratings to record lows.

He must quell anger over rising living costs, about his scandal-plagued party and navigate a volatile security environment in East Asia, which includes China and nuclear-armed North Korea.

His approach to diplomacy with Japan's closest ally, the United States, will be in focus given he has repeatedly called for a more balanced relationship with Washington.

In his campaign, he also called for the creation of an Asian NATO, an idea that could draw ire from Beijing and has already been dismissed by a senior United States official as hasty.

US ambassador to Japan, Rahm Emanuel, congratulated Ishiba in a post on X saying he looked forward to working with him to strengthen the US-Japan alliance.

Who is Shigeru Ishiba?

Ishiba entered parliament in 1986 after a short banking career, but his outspoken views have earned him enemies in the LDP.

He was sidelined by outgoing PM Kishida, instead becoming a dissenting voice in the party who enjoyed broad support from the public and rank-and-file members.

He has rebelled on policies including the increased use of nuclear energy and has criticised his party for not allowing married couples to use separate surnames.

His contrarian views and spats with colleagues contributed to four previous failed leadership bids. He has said this was his "final battle".

The yen bounced on Friday, recovering earlier losses, after Ishiba, seen as a critic of past aggressive monetary stimulus, won the ruling LDP's leadership contest.