(For more on Japan's election, click [ID:nPOLJP])
* Long-ruling LDP loses two-thirds of its lower house seats
* Democrats to start talks on forming government
* Markets seek end to policy deadlock but eye spending plans
* Opposition has pledged to spend money on households
By Linda Sieg and Chisa Fujioka
TOKYO, Aug 31 Japanese voters swept the
opposition to a historic victory in an election on Sunday,
ousting the ruling conservative party and handing the untested
Democrats the job of breathing life into a struggling economy.
The win by the Democratic Party of Japan (DPJ) ended a
half-century of almost unbroken rule by the Liberal Democratic
Party (LDP) and breaks a deadlock in parliament, ushering in a
government that has promised to focus spending on consumers, cut
wasteful budget outlays and reduce the power of bureaucrats.
"The people are angry with politics now and the ruling
coalition. We felt a great sense of people wanting change for
their livelihoods and we fought this election for a change in
government," said Democratic Party leader Yukio Hatoyama, 62.
Hatoyama, the wealthy grandson of a former prime minister, is
expected to name a transition team on Monday to prepare to take
Media projections showed the Democrats set for a landslide
win, possibly taking two-thirds of the seats in parliament's
powerful 480-member lower house. That matched earlier forecasts
of a drubbing for Prime Minister Taro Aso's LDP.
The ruling party loss ended a three-way partnership between
the LDP, big business and bureaucrats that turned Japan into an
economic powerhouse after the country's defeat in World War Two.
That strategy foundered when Japan's "bubble" economy burst in
the late 1980s and growth has stagnated since.
"This is about the end of the post-war political system in
Japan," said Gerry Curtis, a Japanese expert at Columbia
University. "It marks the end of one long era, and the beginning
of another one about which there is a lot of uncertainty."
Financial markets wanted an end to a stalemate in parliament,
where the Democrats and their allies control the less powerful
upper chamber and can delay bills. However, bond yields may rise
if a new government increases spending. [JP/]
The Democrats will have to move fast to keep support among
voters worried about a record jobless rate and a rapidly ageing
society that is inflating social security costs. [ID:nT286286]
Media exit polls showed the Democratic Party had won around
320 lower house seats -- almost triple its 115 before the
election. The LDP slumped to just over 100 seats from 300.
LDP'S PERFORMANCE ITS WORST EVER
Aso said he took responsibility for the defeat, adding an LDP
leadership race to pick a successor should be held soon.
Japanese news agency Jiji said the LDP's performance was the
party's worst since its founding in 1955.
Support for the LDP, which swept to a huge election win in
2005 on charismatic leader Junichiro Koizumi's pledges of reform,
crumbled due to scandals and a perceived inability to address the
deep-seated problems of a shrinking and fast-ageing population.
"It's going to be challenging for the DPJ to allocate money
properly, but I think we should give them a shot," said
38-year-old restaurant owner Yasuhiro Kumazawa. "If it doesn't
work out, we can re-elect the LDP again in four years."
The Democrats have pledged to refocus spending on households
with child allowances and aid for farmers while taking control of
policy from bureaucrats, who are often blamed for Japan's failure
to tackle problems such as a creaking pension system.
"The problem is how much the Democrats can truly deliver in
the first 100 days. If they can come up with a cabinet line-up
swiftly, that will ease market concerns over their ability to
govern," said Koichi Haji, chief economist at the NLI Research
Institute in Tokyo.
"Because hopes for change are so big, the disappointment
would be huge if the Democrats can't deliver results."
The Democrats want to forge a diplomatic stance more
independent of the United States, raising concerns about possible
friction in the alliance.
"The LDP is probably going to be missed more in Washington
than in Japan," said Michael Auslin at the American Enterprise
Institute in Washington.
The party has also vowed to build better ties with the rest
of Asia, often strained by bitter wartime memories.
Economic experts worry spending plans by the Democrats, a mix
of former LDP members, ex-Socialists and younger conservatives
founded in 1998, will inflate Japan's huge public debt.
The party has vowed not to raise the 5 percent sales tax for
four years while it focuses on cutting wasteful spending and
tackles the problems of a greying population.
Japan is ageing more quickly than any other rich country.
More than a quarter of its people will be 65 or older by 2015.
The economy returned to growth in the second quarter, mostly
because of short-term stimulus around the world, but the jobless
rate rose to a record 5.7 percent in July. [ID:nT238602]
(Additional reporting by Tokyo bureau; Editing by Dean Yates and