Ruling party picks Fukuda to lead Japan

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, the son of a former premier 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, looking solemn, bowed to applause from LDP lawmakers and officials after the result of the vote was announced at the party's Tokyo headquarters.

''The LDP is facing an extremely difficult situation and I want to work first to revive the party and win back people's trust,'' Fukuda said after the vote, referring to the ruling coalition's humiliating defeat in a July upper house election.

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

Fukuda 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 in the upper house.

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 Shinya Yao, 49, a labour dispute arbitrator 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.

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

BACK TO THE FUTURE? ''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.

But critics worry he'll be beholden to the LDP's old guard, slow down economic reforms, and be timid on foreign policy.

''I preferred Aso,'' said Katsuya Nishima, 37, who works in the financial sector in Tokyo. ''Fukuda was chosen by party factions and I worry that things will go back to the old Japan.'' Fukuda has pledged, as did Aso, to pay more heed to rural regions and other sectors hurt by reforms begun under Koizumi.

But he has also acknowledged the limits on government spending, given a public debt already equivalent to 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.

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

ELECTION PHOBIA Close-ally Washington is pressing Tokyo to continue refueling coalition ships in the Indian Ocean, but Japan's opposition parties, which can delay laws with their upper house majority, want to end the mission.

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

Avoiding pitfalls that would prompt a snap election for the lower house that 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 main opposition 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 SG RN1446