SNAP ANALYSIS: Japan opposition DPJ win to break policy deadlock

TOKYO (Reuters) - Japan's opposition Democratic Party headed for a historic victory in a general election on Sunday, exit polls showed, trouncing the conservative party that has ruled for almost all of the past half-century.

The Democrats have promised to revive the economy by putting more money in the hands of consumers and to prise policy away from bureaucrats as a way to reduce waste and redirect spending.

Here are some implications of the party's victory.

END OF LDP RULE, COALITION GOVERNMENT EXPECTED

* A Democratic Party victory would end more than half a century of nearly unbroken rule by the business-friendly Liberal Democratic Party (LDP) and break a parliamentary deadlock created when the Democrats and its small allies won control of parliament's upper house in 2007, allowing them to stall bills.

* Democratic Party leader Yukio Hatoyama has said he would form a coalition with smaller allies even if his party won a majority because it needs their support in the upper house. But a landslide win would limit the influence of the smaller parties.

* Hatoyama will be elected prime minister in a special session of parliament but he is expected to want to have his cabinet up and running by September 20 so he can attend a U.N. General Assembly meeting in New York shortly after.

POLICY DEADLOCK BROKEN, SPENDING CONCERNS

* Investors in Japan's stock market would generally welcome an end to the policy deadlock, although a Democratic victory may be largely priced into share prices already.

* Democratic Party policies are unlikely to threaten the economy's gradual recovery from its worst recession in 60 years since the party, like the LDP, has put priority on reviving the economy over fixing tattered state finances.

* Economists say the party's spending plans will likely give growth a small, but not necessarily sustainable, initial boost.

* The Democrats say they can fund spending plans mostly by cutting waste and redirecting spending, but analysts and bond market participants worry that their pledge not to raise sales tax from a current 5 percent for the next four years will inflate an already huge public debt, pushing up government bond yields.

* The new government may also have to figure out ways to cover sliding tax revenues due to the recent recession.

* The Democrats have said they will scrap a record 52.7 trillion yen ($563 billion) ceiling on budget spending set by the government last June for the fiscal year from April 1, 2010, and start the budget drafting process from scratch. They have also said they may halt and/or redirect some planned spending from a record 14 trillion yen extra budget already enacted for 2009/10.

MONETARY, CURRENCY POLICIES

* The Democrats have said they would respect the independence of the Bank of Japan regarding monetary policy, but analysts say the party might lean on the central bank to keep interest rates low if it sees a need to support a nascent recovery.

* The Democrats are unlikely to intervene to weaken the yen, maintaining Japan's five-year absence from currency markets.

DIPLOMACY, SECURITY

* The Democrats have pledged to adopt diplomatic and security policies more independent of Japan's closest ally, the United States, but have recently been signaling a pragmatic stance aimed at avoiding rows with Washington -- at least early on.

* Hatoyama and his party have also pledged to increase mutual trust with Asian neighbors such as China, ties with which have often been frayed by memories of Japan's wartime aggression.

($1=93.64 Yen)

(Editing by Dean Yates and Rodney Joyce)