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Japan Joins Recent Wave Of Economic Expansion

Bank of Japan Governor Masaaki Shirakawa warned last week that the increase in demand may lessen as the effect of government stimulus spending declines. The bank kept interest rates at slightly above zero.

News that Japan's economy is growing appears unlikely to rescue Prime Minister Taro Aso and the ruling Liberal Democratic Party from what would be a historic defeat in a general election Aug. 30.

"It is too late," said Minoru Morita, a political analyst in Tokyo. "Regardless of what the numbers say, a majority of people are struggling day to day. The market will respond, but the general public will not."

Polls show that Aso's party, which has had 54 years of nearly unbroken rule, is likely to be clobbered by the opposition Democratic Party of Japan, which is promising to pay more attention to consumers and small businesses, rather than to the blue-chip corporations that traditionally have had the ear of the LDP.

The Democratic Party is also promising to guarantee pensions for the country's large and growing elderly population. In the past two years, the ruling party has been unable to reassure the elderly, in the wake of a scandal in which millions of government pension records went missing, that their pensions are safe.

The opposition candidate for prime minister, Yukio Hatoyama, a wealthy politician who has a doctorate in engineering from Stanford University, is 10 to 20 percentage points ahead of Aso in recent opinion polls.

"The wind is still blowing for the opposition party," Morita said. "The relationship of the ruling party with the grass roots has been destroyed. People feel they can no longer support LDP, and they want change."

Special correspondent Akiko Yamamoto contributed to this report.

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