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New Japan PM faces hurdles on economy, US ties

NEW Japanese leader Yukio Hatoyama will take office and finalise his cabinet today, putting in place an untested line-up to tackle challenges ranging from restoring economic growth to managing ties with nervous ally Washington.

Hatoyama, whose Democratic Party of Japan (DPJ) trounced the long-ruling Liberal Democrats in an election last month, faces pressure to make good on campaign promises to focus spending on consumers, cut waste, and reduce bureaucrat control over policy.

"The DPJ has got to come up with an agreed list of priorities quickly, because its manifesto is just a long laundry list," said Koichi Nakano, a professor at Sophia University in Tokyo.

"And it better not just be how they will govern differently, but actual policies," he added. "They can expect something of a honeymoon for a year, but not longer than that."

Hatoyama's vow to steer Japan on a more independent diplomatic course has also sparked concerns about possible friction with top security ally the United States ahead of his diplomatic debut there next week, where he will meet President Barack Obama.

The US-educated Hatoyama is expected to reassure Obama over ties and perhaps postpone calls for re-negotiation of agreements on US troops stationed in Japan.

He will then return home to face the urgent task of compiling a budget for the year from April 1 as well as finding ways to plug holes in this year's budget caused by sliding tax revenues as Japan struggles out of recession.

The Democrats have promised to scrap public works projects and other programmes they consider wasteful and use freed up cash to stimulate consumption through measures such as payouts to farmers and families with children and ending expressway tolls.

Investors are watching closely to see if the new government's spending programmes will inflate an already massive public debt.


"The most important element is the finance minister," said Tsuneo Watanabe, a senior researcher at think tank The Tokyo Foundation. "They have to put together a budget that clearly shows them as different from the LDP and the finance minister will be at the centre of that."

The new finance minister, who Japanese media say will be veteran lawmaker Hirohisa Fujii, must balance the need to nurture a recovery from Japan's worst recession since World War Two with concerns about a public debt heading towards 200 percent of GDP.

The economy returned to slow growth in the second quarter but still suffers a record high jobless rate and record deflation.

"If the Democratic Party does not live up to expectations, the country could lose hope, and there will be no way out," Hatoyama told party lawmakers at a general meeting on Tuesday.

"This is not a time for rejoicing."

The Democrats have vowed to centralise decision-making in the cabinet, and a new National Strategy Bureau will be tasked with reforming what the Democrats say is a cumbersome policy-making system that relied heavily on recommendations from bureaucrats.

That means Fujii, a 77-year-old fiscal conservative who has held the post once before, will likely share responsibility for the budget with former Democratic Party leader Naoto Kan, who will head the new National Strategy Bureau.

Kan, who battled bureaucratic corruption as health minister in the 1990s, is seen as a pragmatic force for change.

While pushing changes, Hatoyama must hold together an awkward coalition with two tiny parties whose support he needs in parliament's upper house, and may face fall-out from money scandals looming over him and and party No. 2, Ichiro Ozawa.

He is set to draw the leaders of both parties into the cabinet -- Shizuka Kamei of the conservative Peoples' New Party as financial services minister and Mizuho Fukushima of the Social Democrats to take charge of consumer affairs and policies to boost Japan's very low birthrate.

The appointment of Kamei, a vocal opponent of plans to privatise Japan Post, has spooked some financial experts worried about his opposition to market-friendly reforms.

Climate change could become a policy battleground, after Japan's biggest business lobby said it opposed the Democrats' policy of targeting a 25 percent cut in greenhouse gas emissions compared with 1990 levels by 2020.

Critics have pointed out the target may be hard to achieve in tandem with a steep rise in road traffic expected if highway tolls are abolished in line with the Democrats' manifesto.


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