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Japan's new prime minister – can he fix the economy?

Hatoyama is thinking big on climate change and upending the bureaucracy, but offering little bold direction for ending Japan's extended economic slump. The new PM takes office Wednesday.

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As it prepares to take the reins this week in a historic shift in power, the Democratic Party of Japan is issuing a flurry of pronouncements on everything from drastic cuts in greenhouse gases to reform of a turgid bureaucracy.

But they're not talking about what many say is the biggest problem facing the world's second-largest economy: its two-decade long economic slump. If they don't take enough measures to stimulate the economy, Japan could sink into a double-dip recession, say analysts – undermining the mandate of the DPJ.

The DPJ, which trounced the long-ruling Liberal Democratic Party in national elections Aug. 30, has highlighted small steps that could help stimulate domestic demand – cash allowances for children, cutting gasoline taxes, lower highway tolls, and the like.

But many experts say that is not enough to reverse the fortunes of a country many thought was on its way to becoming an economic superpower in the 1980s.

In July, the International Monetary Fund said Japan may face deflation through 2011. The unemployment rate rose to a record high of 5.7 percent and the core consumer price index dropped at an unprecedented pace of 2.2 percent, heightening deflation concerns.


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