Ruling party picks moderate Fukuda to lead Japan

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TOKYO, Sep 23 (Reuters) Japan's ruling party today picked Yasuo Fukuda, an advocate of warmer ties with Asian neighbours, to be the next prime minister, but the 71-year-old lawmaker faces a likely policy deadlock in a divided parliament.

The Liberal Democratic Party (LDP) rallied behind Fukuda, who is seen as a competent moderate, hoping he can bring stability and stave off calls for an early election after a year of scandal and missteps that ended in the sudden resignation of Shinzo Abe.

The bespectacled Fukuda, almost overcome with emotion, bowed to applause from LDP lawmakers and officials when the result of the vote was announced at the party's Tokyo headquarters.

''I'm not highly educated or talented, and I don't have much experience,'' said Fukuda, the son of a former prime minister.

''But despite that, you have chosen me as party president. I am moved,'' he said, with traditional Japanese humility.

Fukuda won a solid 330 of the 527 valid votes cast against 197 for outspoken rival Taro Aso, a hawkish former foreign minister.

The new party leader will be chosen prime minister on Tuesday by virtue of the ruling camp's huge majority in parliament's lower house, but he will face a feisty opposition that won control of the upper house in a July election and can now delay legislation.

''The LDP must resolve to be reborn and obtain the people's trust,'' Fukuda told a news conference, adding he wanted to hold policy talks with opposition leaders.

Fukuda also faces conflicting pressures to spend more to woo disaffected voters while reining in Japan's mammoth public debt.

''Fukuda seems trustworthy and nice,'' said 49-year-old Shinya Yao in rural Hokkaido, northern Japan.

''I want him to improve the healthcare system. I hope he doesn't raise the sales tax.'' The split in parliament has raised fears of a policy deadlock just as Japan needs action on pensions and tax reform in the face of a wave of retiring baby boomers.

BACK TO OLD JAPAN? Fans of Fukuda, chief cabinet secretary under Abe's popular predecessor Junichiro Koizumi, say his consensual style will be welcome after Koizumi's five years of combative reforms and 12 months of scandals and upsets under Abe.

''Safety, security and stability -- these are the things that many in the LDP are hoping for from Fukuda,'' said Takehiko Yamamoto, political science professor at Waseda University.

Financial markets had already factored in a Fukuda victory, but critics worry he'll be beholden to the LDP's old guard, slow down economic reforms, and be timid on foreign policy.

''Fukuda was chosen by party factions and I worry that things will go back to the old Japan,'' said an Aso supporter, 37-year-old Katsuya Nishima, who works in the financial sector.

Fukuda has pledged to pay more heed to depressed rural regions but has acknowledged there are limits to spending, given public debt is already about one-and-a-half times Japan's gross domestic product.

''Fukuda ... has to seek consensus to pass bills, rather than strongly pushing forward structural reforms,'' said Mamoru Yamazaki, chief economist at RBS Securities.

''In any case, it will be half-baked.'' Abe, who turned 53 on Friday, stunned allies and foes alike by announcing his decision to resign just days after staking his career on extending a Japanese naval mission in support of US-led military operations in Afghanistan.

His agenda to create a ''Beautiful Country'' by reviving traditional values and boosting Tokyo's global security role, will likely take a back seat to pocket-book issues now.

Fukuda has also sounded a softer note toward talks on normalising ties with North Korea, long stalled by an emotive feud over Japanese citizens kidnapped decades ago.

ELECTION PHOBIA One of the new leader's first battles will be over thenaval mission, legislation for which expires on November 1.

Close-ally Washington is pressing Tokyo to continue refueling coalition ships in the Indian Ocean, but Japan's opposition parties want to end the mission.

Although an advocate of a less US-centric diplomaticstance, Fukuda has said Japan needs to continue the mission.

Avoiding pitfalls that would prompt an election for the lower house, which the ruling camp could well lose, will be another priority for Japan's new leader.

''A government that has no mandate from the people will quickly face stalemate,'' the Democratic Party said in a statement. ''A snap election should be held as soon as possible.'' No general election need be held until 2009. But a deadlock in parliament could prompt one and many are eyeing next spring, after passage of the budget for the fiscal year starting next April, as a likely time.

Reuters SKB GC1648

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