Fukuda, 72, has been struggling to work with a divided parliament, where opposition parties can delay legislation.
He also was facing a conflict between his Liberal Democratic Party and its junior coalition party, the New Komeito, which was wary of him leading the coalition into an election that must be held in the next year, according to Reuters.
The opposition Social Democratic Party took control of the upper house in elections last year and has been pushing for snap elections for the more powerful lower house. But the Liberal Democratic Party, which expects to lose seats, has resisted.
Fukuda said the timing of his departure, which will likely occur over the next couple of weeks, was aimed at avoiding a "political vacuum".
"If we are to prioritize the people's livelihoods, there cannot be a political vacuum from political bargaining, or a lapse in policies," he said. "We need a new team to carry out policies. I thought it would be better for someone else to do the job than me."
About a month ago, Fukuda installed his most widely expected successor, former Foreign Minister Taro Aso, as secretary general of the Liberal Democratic Party in a Cabinet shake-up aimed at boosting support for the government, reported the Associated Press.
In addition, Fukuda on Friday introduced an economic relief plan that would cut income taxes and earmark about $16.5 billion in extra spending this year to ease the pain of rising prices, Reuters reported. But the move failed to garner more support for the premier who has a 29 percent approval rating, according to the latest poll.
Fukuda's predecessor, Shinzo Abe, abruptly left office on Sept. 12, 2007, following months of scandal and turmoil within the administration.
Abe, who was the hand-picked successor of popular Premier Junichiro Koizumi, lasted only a year in office.