Such self-inflicted setbacks had been compounded by multi-million-vehicle recalls to replace air bag inflators made by top supplier Takata Corp that have so far been linked to six deaths, all in Honda cars.
For the past three years, Ito, 61, a feisty former supercar engineer, has shaken up Honda's decades-old, tightly-knit supply chain as the automaker sought to trim costs and find more cutting-edge technologies. That has predictably rankled local suppliers, and some retired Honda executives maneuvered to have Ito removed, sources have told Reuters.
"I think this move is an attempt by Honda to tread a different course, with someone who upholds harmony," said Takaki Nakanishi, a veteran auto analyst and CEO of Nakanishi Research Institute.
Read MoreHonda cuts profit target as Takata air bag recalls bite
A former senior Honda official said he was surprised by Monday's announcement. Hachigo had been widely expected to join Honda's board, but "like many inside Honda, I'd thought Ito was ready to continue as CEO at least for another term."
The former official said he thought Ito's resignation was his own decision.
Hachigo, who worked on the popular U.S. Odyssey minivan and CR-V crossover, would skip several ranks to become CEO after Honda's annual shareholders' meeting in late June. He joined the company in 1982 with a career spanning several countries including the United States, Britain and China. He is currently Vice President of Honda's R&D arm in China.
Ito, 61, became CEO in 2009 as the auto industry was licking its wounds from a crushing global financial crisis. The ensuing years were no easier, as a disappointing launch of the Civic model caused many to question whether Honda had lost its edge. Natural disasters in Japan and Thailand also hit production and profits hard.
Ito will remain on the board and become an adviser to Honda.
Ito and Hachigo were due to hold a news conference in Tokyo at 5 p.m. (3 a.m. EST).