Japan opposition takes on economy after landslide

[August 31, 2009]  TOKYO (AP) -- Japan's likely next prime minister rushed to select Cabinet ministers Monday after his party trounced the ruling conservatives in elections and inherited a mountain of problems, including how to revive the world's second-largest economy.

Yukio Hatoyama spoke only briefly with reporters before huddling with party leaders. In a victory speech late Sunday, he said he would focus on a quick and smooth transition and make a priority of choosing Japan's next finance minister.

He has also said he wants to redefine Tokyo's relationship with its key ally, Washington.

Prime Minister Taro Aso, conceding defeat, said he would step down as president of the ruling Liberal Democratic Party.

"As head of the party, I feel strong responsibility and it is my intention to resign," Aso told a news conference Monday. His successor as party leader is expected to be named in late September.

Although the nation gave the Democratic Party of Japan a landslide win, most voters were seen as venting dissatisfaction with the LDP and the status quo.

The staunchly pro-U.S. LDP -- teaming up with big business, conservative interests and the powerful national bureaucracy -- governed Japan for virtually all of the past 54 years. Their election loss has been attributed primarily to frustration with the economy, which is in its worst slump since World War II.

Official results were still being counted, but exit polls by all major media said Hatoyama's party had won more than 300 of the 480 seats in the lower house of parliament. That would easily be enough to ensure that he is installed as prime minister in a special session of parliament that is expected in mid-September.

The Democrats controlled the less powerful upper house of parliament with two smaller allies since 2007, but if they fail to quickly deliver on their promises, the LDP could resurge in elections for that house next year.

The task ahead for the Democrats is daunting.

Japan managed to climb out of a yearlong recession in the second quarter, but its economy remains weak. Unemployment and anxiety over falling wages threaten to undermine any recovery. The jobless rate has risen to a record 5.7 percent. After a rapid succession of three administrations in three years, Japan is facing its worst crisis of confidence in decades.

It must also figure out how to cope with a rapidly aging and shrinking population -- meaning fewer people paying taxes and more collecting pensions. Government estimates predict the population will drop to 115 million in 2030 and fall below 100 million by the middle of the century.

The Democrats' solution is to move Japan away from a corporate-centric economic model to one that focuses on helping people. They have proposed an expensive array of initiatives: cash handouts to families and farmers, toll-free highways, a higher minimum wage and tax cuts. The estimated bill comes to 16.8 trillion yen ($179 billion) when fully implemented starting in the 2013 fiscal year.

The party has said it plans to cut waste and rely on untapped financial reserves to fund their programs. But with Japan's public debt heading toward 200 percent of gross domestic product, the Democrats' plan has been criticized as a financial fantasy that would worsen Japan's precarious fiscal health.

Japan's stock market surged early Monday on the news of the election, but then fell back -- indicating uncertainty among investors about what the Democrats will bring.

"The key difference is the Liberal Democrats' spending on public projects and infrastructure, but the Democrats spend on family and education," said Martin Schulz, a senior economist at the Fujitsu Research Institute.

"The Democrats have a year to show results," he added, noting next year's elections are looming.

The Democrats are also under scrutiny for their positions on national security and foreign policy.

Hatoyama has been vocal about distancing Japan from Washington and forging closer ties with its Asian neighbors.

He has said he will end a refueling mission in the Indian Ocean in support of U.S.-led coalition forces in Afghanistan, and wants to review the role of the 50,000 U.S. troops stationed across Japan under a post-World War II mutual security treaty.

He is not expected to make any radical departures that would harm relations with Washington, however, and the new U.S. ambassador to Japan said President Barack Obama is looking forward to working with the administration in Tokyo.

"The challenges we face are many, but through our partnership our two great democracies will meet them in a spirit of cooperation and friendship," Ambassador John V. Roos said in a statement Monday.

The Democrats' first task will be to convince a skeptical public that they can actually lead.

The party is made up of an inexperienced group of left-wing activists and LDP defectors. It is just 11 years old, and only a handful have served in top government positions.

But Ichiro Ozawa, co-founder of the party, expressed a quiet confidence.

"We have no fear, and we will steadily achieve our campaign promises one by one," he said.

[Associated Press; By ERIC TALMADGE]

Associated Press writer Jay Alabaster contributed to this report.

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