There is enormous pressure on Yukio Hatoyama, with experts warning that he faces a raft of social and economic challenges.
Japan’s economy did return to growth in the April-June quarter, but it is feared the country’s recovery will lose steam by the end of the year.
Stimulus spending to tackle financial woes over the past five years have left the country with a huge debt.
It is estimated Japan’s gross domestic product will fall by six percent this year. And while production is slightly up, so is unemployment, reaching its highest level since 2003.
One of the political hot potatoes for the new government will be whether to raise the country’s five percent sales tax. Many say this will be necessary to pay for much-needed social programmes, but so far the Democrats are saying they won’t raise the tax for at least four years.
With an increasingly large elderly population, the country is struggling to meet the cost of healthcare, social welfare and pensions. The new government is promising reforms to spend more on social programmes, but debate is likely to be fierce over where to raise the extra money.
By 2015, it is expected that more than 25 percent of the population will be aged over 65. Financial benefits to encourage childbirth are being planned, including bonus payments and help towards the cost of schooling. This among warnings that the country’s population could fall from 127 million to 94 million by 2050.
Some Japanese commentators say years of pro-market reforms under the out-going conservatives widened the gap between the rich and the poor and also between Japan’s different regions.
The country is also coming to terms with the news that next year China is expected to take Japan’s place as the world’s second largest economy, behind the US.