UPDATE 3-Japan PM picks fiscal hawk as deputy in reshuffle

* Okada to oversee tax reform as deputy PM

* Noda also replaces defense minister

* Scepticism over whether cabinet revamp is game-changer

By Linda Sieg and Shinichi Saoshiro

TOKYO, Jan 13 (Reuters) - Prime Minister Yoshihiko Noda appointed fiscal hawk Katsuya Okada as his deputy in charge of tax and social security reform in a cabinet reshuffle on Friday, vowing to forge ahead with sales tax increases despite a deadlocked parliament.

Noda also chose Naoki Tanaka, an upper house lawmaker from the ruling Democratic party, to replace gaffe-prone Defence Minister Yasuo Ichikawa, the top government spokesman said in announcing a cabinet revamp.

Noda hopes drafting Okada, who has held key government and party posts in the past, will boost the government's chances of pushing through an increase in Japan's 5 percent sales tax to fund swelling social welfare costs.

"In order to have a sustainable social security system in the future we must secure stable funding. And that means asking the people to share the burden," Noda told a news conference.

"The debt problem in Europe is not just someone else's problem."

The government plans to submit bills by March to double the sales tax in two stages by 2015, and Noda repeated his call for the opposition to take part in talks on the proposals.

But with the biggest opposition party instead pressing for an early general election, analysts question whether the move would be a game-changer for Noda, whose popularity rates have sunk since he took office in September.

"We can't accept being part of a lie and resolving the matter through prearranged bid-rigging," Kyodo news agency quoted Sadakazu Tanigaki, head of the main opposition Liberal Democratic Party, as telling a party meeting.

Many members of Noda's own Democratic Party of Japan (DPJ), which swept to power in 2009 promising to slash waste before raising taxes, are also leery of approving a tax hike ahead of a general election that must be held by 2013.

Japan's sales tax rate is one of the lowest among major economies, but raising it has long been politically touchy. The last rise in the tax, in 1997, was blamed by some for triggering a recession that led to a long period of deflation.

Okada's appointment is unlikely to go down well with detractors, many of whom back former party leader Ichiro Ozawa, a party heavyweight now on trial over a funding scandal.

Noda took care in his first cabinet line-up to balance the often-feuding factions inside the DPJ, leaving him open to criticism that he had valued party harmony over competence.

In Friday's reshuffle, he also replaced the head of the National Public Safety Commission, who, along with Ichikawa, had been censured by the upper house.

TAKING SIDES

"Noda ... has found out it is difficult to navigate the 'twisted Diet' (parliament), especially if you don't have your own ducks in a row," said Jeffrey Kingston, director of Asian studies at Temple University's Japan campus.

"But we are not looking at real relief to the prevailing political gridlock."

Okada, 58, is known for his clean, serious image, a stubborn streak and his support for fiscal reforms to help rein in public debt already twice the size of the $5 trillion economy.

He was Democratic Party leader when the party was in opposition and has since served as foreign minister and party secretary-general.

The 71-year-old Tanaka, who takes over the defense portfolio, is the son-in-law of former prime minister Kakuei Tanaka. He is a former head of an upper house foreign policy and security panel, as well as a member of the DPJ faction led by Ozawa, an apparent nod to the veteran lawmaker's lasting influence.

Tanaka will face a tough task of coping with the unpredictable North Korea and China's rapid military buildup, while trying to win local consent for the planned relocation of the U.S. Marines' Futenma airbase within Japan's southern Okinawa island.

Noda took over in September as Japan's sixth premier in five years, promising to get massive public debt under control and spearhead the country's reconstruction after a deadly earthquake and tsunami struck northeastern Japan last March.

His support rating has since tumbled, with voters divided on his tax proposals and doubtful whether he can accomplish more than his five predecessors in the face of a divided parliament.

Some analysts say Noda may be able to win voter support if he demonstrates leadership by sticking to his policy.

Others doubt whether he can break Japan's prolonged cycle of political paralysis as the world's third-biggest economy struggles with a fast-ageing population and confronts nimbler regional rivals such as China and South Korea.

"Maybe Okada can add a certain gravitas to the cabinet," said Sophia University political science professor Koichi Nakano. "But the opposition want an election this year, so it's almost a lost cause."

Finance Minister Jun Azumi and Foreign Minister Koichiro Gemba kept their posts in the reshuffle, in which a total of five new ministers were appointed.