Sticky U.S.-Japan issues loom for Hatoyama in New York

TOKYO (Reuters) - Japan's new prime minister, Yukio Hatoyama, faces his first diplomatic test this week when he meets President Barack Obama in New York as the two allies grapple with disagreements that investors fear could damage ties.

Hatoyama will also seek a high profile for Japan at a U.N. climate change conference by pledging ambitious targets for cuts in greenhouse gas emissions and offering more environmental help to developing nations.

Hatoyama's Democratic Party of Japan (DPJ), which trounced its long-dominant conservative rival in an August election, has vowed to forge a more equal partnership with Washington, setting goals such as revising deals on U.S. forces based in Japan.

The untested government confronts the challenge of finding ways to agree on these issues quickly and without alienating Japan's biggest ally or the DPJ's pacifist coalition partner, the Social Democratic Party.

Hatoyama meets Obama on Wednesday on the sidelines of a U.N. General Assembly meeting.

Foreign Minister Katsuya Okada said last week he wanted to resolve a row over how to ease the burden of U.S. military bases on Japan's southern island of Okinawa within the first 100 days of the new administration.

Although Washington appears to have softened an earlier refusal to consider changes to a roadmap dealing with U.S. forces on Okinawa, some analysts say Japan's Democrats may have bitten off more than they can chew.

"Japan and the U.S. have been negotiating about the Okinawa bases for more than 13 years, so I do not think they can so quickly conclude any new kind of agreement," said Chris Hughes, a Japan expert at the University of Warwick in Britain. "I think any negotiations are going to be very long and hard."

Under an existing deal, a U.S. Marine base would be moved from a town in Okinawa to a less populated part of the island. Hatoyama has said the base should be moved off Okinawa completely, although he has not proposed an alternative location.

It is disagreements such as those that concern investors. A Reuters survey of 33 financial market traders and analysts last month showed a third saw strained ties with Washington as one of the key risks for Japan.

The U.S.-educated Hatoyama also raised eyebrows in Washington with a recent essay, published in English, in which he attacked the "unrestrained market fundamentalism" of U.S.-led globalization. He has since played down those comments.

AFGHAN CONUNDRUM

For its part, Washington wants a decision from Japan on how it will contribute to stabilizing Afghanistan before Obama visits Tokyo in November, Japanese media say.

Okada has been vague about whether Tokyo would continue a relatively low-risk refueling mission in the Indian Ocean in support of U.S.-led military operations, saying only that there would be no "simple extension" of its legal mandate, which expires in January

Sending troops to Afghanistan is not an option under current security conditions, Okada told a television talk show on Sunday, adding money might be the focus of Japan's assistance.

Okada's pledge to complete by November an investigation into a decades-old "secret agreement" between Washington and Tokyo that effectively allowed nuclear-armed U.S. vessels to enter Japan has also sparked concern in the United States.

It also underscores the nuclear dilemma Japan faces.

As the only nation to have suffered nuclear attacks, Hatoyama has said it is Japan's "moral mission" to strive for a nuclear-free world. At the same time, Japan relies on the U.S. arsenal to protect it from regional threats such as unpredictable neighbor North Korea..

Hatoyama has said he will ask Obama to promise that U.S. vessels would not bring nuclear weapons into Japanese ports.

That could lead to "a diplomatic mashup," according to Brad Glosserman of Pacific Forum CSIS, a think tank based in Hawaii.

"I don't think the DPJ has thought through the implications. It strikes me as a dangerous position. It's one thing to expose the hypocrisy of your predecessors, it's another to be faced with punishing dilemmas."

Building trust is Hatoyama's goal for his first meeting with Obama but it may be hard to pull off, some analysts said.

"By supporting one another through policies, you create good ties. If your policies are at odds, you can't form a good relationship," said Fumiaki Kubo of Tokyo University.

(Additional reporting by Linda Sieg in Tokyo and Paul Eckert in Washington, Editing by Dean Yates)