Whoever takes over, next Japan PM faces daunting challenges

Abe's Liberal Democratic Party (LDP) will choose its next party president on Sept. 14.

The winner will serve out Abe's term as party leader until September 2021 and is all but assured the premiership by virtue of the LDP's majority in parliament.

Below are main issues the new leader will confront.

Abe's signature "Abenomics" growth strategy was facing headwinds because of an export slump and a sales tax increase even before the coronavirus outbreak, highlighting the problem of lifting the economy out of decades of stagnation.

Critics said Abe's "third arrow" of structural reforms - the first two were hyper-easy monetary policy and government spending - was not bold enough in the face of a fast-ageing population and a rigid labour market.

Japan has not seen an explosive coronavirus outbreak but cases have been rising and the government must balance containing it and restarting the economy. The pandemic brought Japan's biggest economic slump on record and a third quarter of declines knocked real gross domestic product growth to decade-low levels, wiping out the benefits of “Abenomics”.

Policymakers are short of ammunition with a big public debt limiting new government spending and the Bank of Japan running out of options to hit its elusive 2% inflation target.

Japan is also struggling with a rock-bottom birthrate, shrinking labour force and low global ranking on women's empowerment.

Japan's ties with China had improved ahead of a planned visit by President Xi Jinping, but the trip was postponed because of the coronavirus. Some LDP members want the visit cancelled over China's clampdown on Hong Kong and its push to assert claims in the East China Sea.

China is locked in a confrontation with the United States over rights, trade and security, and Washington may press Tokyo to take sides. But while Japan shares U.S. concerns about China, the Asian neighbours' economies are deeply intertwined so the next leader must balance security and economic priorities.

Abe had forged close ties with President Donald Trump so the next leader will be starting afresh no matter who wins the U.S. election.

Pressure on Japan from its main security ally to take on a greater share of the burden of its defence and pay more to host U.S. troops is unlikely to ease.

Japan's ties with U.S. ally South Korea are frigid due to disputes over Koreans forced to work for wartime Japanese firms and "comfort women", a euphemism for those pushed into Japan's military brothels, and the feud has spilled over into security and trade.

The government has begun a review of its National Security Strategy following a June decision to scrap a plan to deploy the U.S.-made Aegis Ashore ground-based missile defence system at two sites.

An LDP committee wants the government to consider a strike capability to halt ballistic missiles within enemy territory, a controversial issue for a country that renounced the right to wage war after its World War Two defeat. The proposal is also likely to anger China and Russia, which could fall within range of any new strike weapons.

Abe engineered a historic policy shift by reinterpreting the pacifist constitution, passing laws to end a ban on exercising the right of collective self-defence, or defending a friendly country under attack.

But he failed to achieve his goal of revising the post-war, U.S.-drafted charter's pacifist Article 9. Amending that is divisive and the new leader must decide if it's a priority.

Abe's successor is likely to lead the LDP in a general election that must be held by October 2021 and could come sooner.

The weakness of fragmented opposition parties helped Abe hold power by leading the LDP-led ruling bloc to repeated election victories, and the LDP is expected to hold a majority in the next election.

But whether it can keep its nearly two-thirds majority in the lower house is a question and will likely hinge on the coronavirus, the economy and the new leader's image.