UPDATE 3-Japan's incoming government seeks to reassure U.S.

Wed Sep 2, 2009 4:42am EDT

(For more on Japan's election, click [ID:nPOLJP])

* Japan ties with security ally Washington in spotlight

* Democrats want ministries to cooperate in transition

* New government will not meddle with central bank-lawmaker (Adds Hatoyama's comments on sales tax)

By Chisa Fujioka and Tetsushi Kajimoto

TOKYO, Sept 2 (Reuters) - Japan's incoming government sought to reassure security ally Washington on Wednesday that no upheaval was in store for U.S.-Japan relations, as the country groped towards a rare handover of power.

The Democratic Party is preparing to take over after trouncing the long-ruling Liberal Democratic Party (LDP) in an election on Sunday. Parliament is due to vote in Democratic Party leader Yukio Hatoyama as prime minister in two weeks.

Managing ties with the United States is high on the agenda after the party said it wanted to chart a course more independent of Washington.

But Hatoyama is not expected to damage an alliance long at the core of Japan's diplomacy and a senior Democratic Party lawmaker sought on Wednesday to allay any simmering concerns, including among investors, over the relationship. [ID:nT323721]

"We have repeatedly said Japan-U.S. relations are most important as a basic principle in diplomacy and stressed the importance of continuity in diplomacy," Kohei Otsuka said in an interview with Reuters. [ID:nT20701]

The Democrats have said they want to reexamine an agreement governing U.S. military forces in Japan and a deal under which about 8,000 Marines will leave for the U.S. territory of Guam and a Marine Corps air base shifted to a less-populated part of the southern island of Okinawa. [ID:nN31454415]

New U.S. ambassador to Japan John Roos said in an interview with U.S. National Public Radio the deals were not negotiable.

"Just to make it abundantly clear, both the United States and Japan, at the government-to-government level, have made it absolutely clear that these agreements have been signed, agreed to, and are going forward," Roos said.

The Democrats have said they want the air base moved off Okinawa, where many residents feel they shoulder an unfair share of the burden for the U.S.-Japan security alliance.

Hatoyama will head to the United States soon after forming his cabinet to make his diplomatic debut at a U.N. General Assembly meeting and a G20 summit in Pittsburgh. Japanese media said he would also hold talks with U.S. President Barack Obama.

The U.S.-educated Hatoyama raised eyebrows in Washington with a recent essay in which he attacked the "unrestrained market fundamentalism" of U.S.-led globalisation. He sought to play down those comments on Monday, saying he was not anti-American.

TRANSITION IN PROGRESS

Other party executives pushed ahead with process of handing over power in Japan.

Democrat Secretary-General Katsuya Okada met the top aide to outgoing Prime Minister Taro Aso and requested that government ministries help ensure a smooth transition. It is only the second time the LDP has lost power since its founding in 1955.

"For the sake of the country, I think we should cooperate fully with the new administration," the aide, Chief Cabinet Secretary Takeo Kawamura, told reporters before the meeting.

The Democrats made curbing the clout of bureaucrats who have long controlled policy-making a key election promise, but also need their cooperation to implement programmes such as putting more money in the hands of households. [ID:nT67167]

Reviving the economy is a key challenge, with unemployment at a record high and investors worried whether the new government will raise spending and further increase Japan's soaring public debt, already at 170 percent of GDP. [ID:nT323721]

Otsuka said the next government would not meddle in the Bank of Japan's policy and market operations, shrugging off speculation it might pressure the central bank to print money to buy government debt. [ID:nT20701]

"The incoming government and the central bank got off to a smooth start," Otsuka said, a day after Bank of Japan Governor Masaaki Shirakawa met with Hatoyama.

Hatoyama suggested it might be necessary eventually to raise the 5 percent sales tax in the future to fund growing social security costs as more Japanese become pensioners.

Japan is ageing more rapidly than any other rich country. Over a quarter of Japanese will be 65 or older by 2015.

For a graphic tracking Japanese demographics, click:

here

The Democratic Party has pledged not to raise the sales tax for at least four years, prompting questions about where it will get the money for its spending plans. The Democrats say they can fund the programmes by cutting waste and redirecting spending.

The Democrats also need to firm up a proposed coalition with two tiny partners on the left and the right, whose cooperation is needed to keep control of parliament's less powerful upper house.

The three agreed some policies before the election, but have shied away from talks on security matters, where large gaps loom. (Additional reporting by Colin Parrott, Yoko Nishikawa and Yoko Kubota; Writing by Linda Sieg and Isabel Reynolds, Editing by Dean Yates and Hugh Lawson)

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