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September 2, 2009

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Japan puts economy in the spotlight

JAPAN'S Democratic Party, fresh from a landslide election victory, discussed the country's struggling economy with the central bank and finance ministry yesterday as part of the transition to a new government.

Reviving the economy is a key challenge for the party, with unemployment at a record high and investors concerned about deflation and whether the new government will raise spending and further increase Japan's soaring public debt.

Democratic Party leader Yukio Hatoyama told reporters that he would form a Cabinet on September 16 or 17 once parliament has formally voted him in as prime minister. Parliament will meet on September 16.

Hatoyama is expected to head to the United States the following week to make his diplomatic debut at a United Nations General Assembly meeting and a G20 summit in Pittsburgh. Japanese media said he would hold talks with President Barack Obama during the trip.

Hatoyama has said he wants Japan to forge a more independent stance from close ally Washington, raising some concerns that ties with the US could become strained.

Hatoyama, who won a sweeping mandate for change in Sunday's lower house election, exchanged views on the economy yesterday with Bank of Japan Governor Masaaki Shirakawa, although neither gave details on what they discussed.

Top finance bureaucrat Yasutake Tango met members of the Democratic Party to talk about the agenda for a meeting of G20 finance ministers in London later this week.

Outgoing Economics Minister Yoshimasa Hayashi warned about the risks of deflation and urged the new government to consider carefully its exit strategy from stimulus measures introduced to help Japan weather the global financial storm.

While investors had sought a clear election outcome, uncertainty over the new government's direction has weighed on Japanese stocks.

The yen strengthened on Monday on the end of the political uncertainty and held its ground yesterday.

The Democrats' historic election win over the long-ruling Liberal Democratic Party broke a deadlock in parliament, where the opposition had controlled the less-powerful upper chamber since 2007 and could delay bills.

The Democratic victory was driven more by frustration with the LDP than broad support for the decade-old opposition, explaining a lack of post-election euphoria in the world's second-largest economy.

Still, 71 percent of voters said they had high expectations of Hatoyama, a Kyodo news agency poll showed.

Japan's public debt has ballooned to 170 percent of GDP, the highest among developed nations, due to its repeated attempts to spend its way out of the economic doldrums.

Some investors are concerned about fiscal discipline under the Democrats, who have promised cash handouts for parents, but the party has said it will cut spending in other areas to fund its new policies.


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