(Reuters) - Conservative ex-premier Shinzo Abe got a second chance to lead Japan after his party surged back to power in Sunday's election and faces pressure to move swiftly to bolster a sagging economy and manage strained ties with China.
The Liberal Democratic Party's (LDP) landslide just three years after a crushing defeat appears more a damning verdict on its rivals' brief spell in power than an embrace of Abe's agenda or the party that had ruled Japan for most of the past 50 years.
The vote gave the LDP and its small ally a two-thirds majority in the lower house. It will usher in a government committed to a tough stance in a territorial row with China, a pro-nuclear energy policy despite the 2011 Fukushima disaster and a potentially risky recipe for hyper-easy monetary policy and big spending to boost growth.
NHK public TV said on Monday the LDP had won 294 seats in the 480-member lower house. Its ally the New Komeito party won 31 seats, giving the two enough votes to overrule most matters in the upper house, where no party has a majority, reports Reuters.
Executives of both parties discussed on Monday steps to pull the economy out of its fourth recession since 2000. Abe will meet his New Komeito counterpart on Tuesday to cement ties.
The prospect of overcoming the policy gridlock that has dogged successive governments for the past five years cheered investors, with stocks extending their month-long rally and the yen weakening further.
The yen fell to as much as 84.48 against the dollar, a 20-month low, while the benchmark Nikkei rose 1.6 percent. Bond prices eased in anticipation of economic stimulus.
A further increase in the central bank's bond-buying scheme is expected on Thursday, when the BOJ holds this year's last policy meeting, while markets also expect an extra budget worth up to 10 trillion yen (74.2 billion pounds).
Abe, 58, said he would revive an economic panel abolished by the outgoing government, which could give him a regular venue to speak with the BOJ chief and pressure the central bank for more aggressive action.
Analysts said Abe did not have much time to make good on his promises.
"If he doesn't deliver a feel-good factor by the July (upper house) election, the LDP will get trounced," said Jesper Koll, head of equity research at JPMorgan Chase in Tokyo.
Prime Minister Yoshihiko Noda's Democratic Party of Japan, which swept to power with a promise to break up the "iron triangle" linking the powerful bureaucracy, big business and LDP lawmakers, crashed under the weight of dashed hopes.
The party, hit by defections before the vote due to Noda's unpopular plan to raise the sales tax, captured only 57 seats, less than a fifth of its 2009 tally. Noda promptly resigned as party leader.
"In a word, rather than a huge victory for the LDP, this election was a massive defeat for the Democrats," the Nikkei business daily said in an editorial.
Analyst Bruce Klingner of the Heritage Foundation think tank in Washington said Abe's win also reflected "an embrace of conservative views" after strained relations with Japan's neighbours in recent years.
"Chinese assertiveness and North Korean provocations nudged the public from its usual post-war complacency toward a new desire to stand up for Japanese sovereignty," he said.
However, that did not mean the Japanese were embracing a return to militarism, added Klingner, a former CIA analyst.
Warnings from state Chinese media that Japan-China relations might suffer if Abe tried to push too hard show that he will have to walk a fine line between appearing soft and risking another damaging flare-up in tensions.
"When Abe takes power, the Chinese should take real action to immediately set him straight," said a commentary in Global Times, a popular tabloid published by the same group that runs the Communist Party's People's Daily. "If he takes excessively hardline action against China, we should resolutely fight back."
Abe, who quit as premier in 2007 citing ill health, has been talking tough in a row with China over uninhabited isles in the East China Sea, although some experts say he may temper his hard line with pragmatism once in office.
The soft-spoken grandson of a prime minister is due to be confirmed as Japan's seventh premier in six years on December 26. He will also have to prove he has learned from the scandals and charges of incompetence that plagued his first administration.
Jiji news agency said previous LDP Prime Minister Taro Aso, 72, could be tapped as finance minister and deputy premier. He launched massive economic stimulus packages to fight the impact of the 2008-2009 global financial crisis but was dogged by policy flip-flops and gaffes.
Voter distaste for mainstream parties has spawned a clutch of new parties, including one founded by popular Osaka Mayor Toru Hashimoto, which took 54 seats. Voter turnout hit a post-war low of just above 59 percent, according to media estimates.
Abe wants to loosen the limits of a 1947 pacifist constitution on the military so Japan can play a bigger global security role and strengthen its alliance with the United States, where he plans to go on his first overseas trip.