UPDATE 3-Japan on course for Dec. 16 election and seventh PM in six years

Fri Nov 16, 2012 2:01am EST

* Election unlikely to resolve policy deadlock

* Opposition LDP outlines platform, aims to beat deflation

* Ruling party MPs dash to defect

* Mini-parties scramble to get ready for vote

By Linda Sieg and Tetsushi Kajimoto

TOKYO, Nov 16 (Reuters) - Japan dissolved parliament's lower house on Friday for a Dec. 16 election that is likely to return the long-dominant Liberal Democratic Party (LDP) to power with a conservative former prime minister at the helm.

That prospect has prompted concerns that former Prime Minister Shinzo Abe, who polls suggest is looks likely to be the next premier, will further fray ties with China, already chilled by a territorial row over a group of islands.

Few expect the election, three years after a historic victory swept the Democratic Party of Japan (DPJ) to power for the first time, will fix a policy stalemate that has plagued the economy as it struggles with an ageing population and the rapid rise of China.

"They will probably have the same problems of a revolving door at the top and a weak government that finds initiating tough reforms difficult and is tempted to enjoy nationalist grandstanding," said Jeffrey Kingston, director of Asian studies at Temple University's Japan campus.

Prime Minister Yoshihiko Noda, Japan's sixth prime minister in six years and the third since the DPJ's landslide election win, had promised three months ago to set a vote date in exchange for opposition support for his pet policy to double the sales tax by 2015 to curb massive public debt. This week he finally kept that pledge despite pressure from his own party to delay the vote, which the Democrats are widely expected to lose.

"When politics get chaotic, it is always the people who are sacrificed," Toyota Motor Corp President Akio Toyoda, who heads the auto industry lobby group, told a news conference.

"We want a leader who can understand the difficulties that the people are going through, someone who can lead to create a country and society where those who work hard are rewarded."

Policies in the spotlight include the role of the central bank in reviving an economy slipping into its fourth recession since 2000, the future of nuclear power after last year's Fukushima disaster, and whether Japan should take part in the Trans-Pacific Partnership, a U.S.-led trade pact that Noda favours joining.

The LDP said on Friday in a draft of its economic platform that it would do its best to beat deflation, which has dogged Japan for years, and tame the strength of the yen, the source of constant complaints from the country's exporters.

It said it would achieve nominal economic growth of 3 percent or more and revise the Bank of Japan law in a step critics worry would weaken the central bank's independence.

In recent days Abe has called on the central bank to print "unlimited yen" and set interest rates at zero or below zero to boost the economy.

DEMOCRATS DEFECT, MINI-PARTIES SCRAMBLE

But with policy differences between the main parties in many cases a matter of nuance and degree, some say the biggest election question will be who is best qualified to lead.

"The main issue will be whether we should get rid of the 'incompetent' DPJ and bring experienced people (the LDP) back," said one ruling party lawmaker, speaking privately.

"Or whether because the LDP created the mess, we should have a stronger more intelligent leader, like Hashimoto," the lawmaker added, referring to p o pular Osaka Mayor Toru Hashimoto, who leads the small Japan Restoration Party.

The DPJ took power in 2009 pledging to pay more heed to the interests of consumers and workers than corporations and give control of policy to politicians rather than bureaucrats.

Hopes of meeting those pledges faded after the first DJP premier, Yukio Hatoyama, squandered political capital in a failed attempt to move a U.S. airbase off Japan's Okinawa island.

Successor Naoto Kan led the party to an upper house election defeat in 2010 and then struggled to cope with the huge earthquake, tsunami and nuclear crises in 2011.

With the party's prospects dim, DPJ lawmakers were scrambling to defect. The Asahi newspaper said at least nine of its 244 members in the 480-seat lower house planned to bolt.

Smaller parties are scrambling to try to join forces despite major gaps in their policies and competition over who would lead the bigger bloc.

The LDP looks likely to win the most seats in the lower house poll but a lack of voter enthusiasm makes it uncertain whether the party and its former junior partner, the New Komeito party, can win a majority.

"We must achieve victory. That is our mission for the people and with that in mind, I resolve to fight this historic battle," Abe told party executives.

If not, the LDP will need to seek another coalition partner either from among a string of new, small parties, or even what's left of the DPJ after the election.

That latter option is less unlikely than it might seem at first blush. The LDP and DPJ lack stark policy differences, especially since Noda - a conservative on both fiscal and security matters - took the helm of what began as a centre-left party in 1996. The party's membership has been whittled by a series of defections over Noda's policies.

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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