Japan PM calls election as LDP battles to hold on

By Yoko Kubota and Yoko Nishikawa

TOKYO (Reuters) - Japanese Prime Minister Taro Aso dissolved parliament's lower house on Tuesday for an August 30 election that polls show could see his conservative party ousted for only the second time in its more than half-century reign.

A victory for the opposition Democratic Party of Japan would raise the chances of breaking a deadlock caused by a divided parliament that has stymied policy implementation as Japan struggles to emerge from recession.

It would also usher in a government pledging to pay more heed to consumers than companies, to wrest control of policy from bureaucrats to cut waste, and to adopt a diplomatic stance less subservient to close ally the United States.

"This is a major, revolutionary election to allow politicians to take the lead in Japanese government," opposition Democratic Party leader Yukio Hatoyama told party members.

"We should face it with a sense of historic mission."

Aso's LDP, which has ruled for all but 10 months since its founding in 1955, has relied heavily on bureaucrats to craft policies that analysts say helped build Japan's post-war economic "miracle" but later blocked reforms.

Many investors in Japanese financial markets would welcome an end to the prolonged political stalemate, but some analysts worry that the opposition's spending plans will inflate an already huge public debt and push up government bond yields.

"I think that for the short-term, hope that the Democrats taking power will cure the parliamentary paralysis and lead to smooth passage of bills and policies will outweigh any worries about uncertainty," said Noritsugu Hirakawa, a strategist at Okasan Securities.