国际英语新闻：Party unity, economic recovery remains biggest battle for reelected Japanese PM

Of immediate concern to Kan however will be the strength of the yen which has advanced more than 10 percent from this year's low of 94.99 in May and remained near a 15-year high even after the Bank of Japan expanded a credit program on Aug. 30.

Many Japanese companies have set their assumption rates for dollar/yen at 90 yen and at 110-115 yen for euro/yen in the year to March 2011 and when the yen is strong profits are eroded when repatriated, hampering the nation's export-led recovery.

Kan, a former finance minister and known as a fiscal hawk, is seen as less likely to directly intervene in the financial markets. After his reelection, the yen rose to a fresh 15-year high.

Japan hasn't actually intervened in the currency market since March 2004 when the yen was at 109 per dollar.

The Bank of Japan sold 14.8 trillion yen (177 billion U.S. dollars) in the first three months of 2004, after record sales of 20.4 trillion yen in 2003.

For the time being, Kan appears to be trying to "talk the yen down" before making bigger moves. He said that getting international cooperation to halt the yen's gain is "difficult," and the government is negotiating with other countries to ensure they won't say "negative" things when Japan does make its move.

Another concern will be the deflation and skyrocketing public debt.

The prime minister has consistently leant on the Bank of Japan (BOJ) to do more to tackle the nation's persistent deflation.

To achieve his economic and fiscal goals, Kan is likely to reach out to opposition parties for help in getting bills through parliament, where the ruling bloc now lacks an upper house majority.

To enact legislation to get Japan's economy back on track, Kan needs to mediate and lessen the impact of the fragmented ruling party. If Kan's administration cannot enact a 2011/12 budget, Ozawa might then defect and start his own party, sparking political bedlam that could lead to the DPJ's fall from power.

"It's only going to get harder for Kan. Japan has the biggest public debt in the industrialized world and is seemingly caught in a cycle of perpetual deflation with no clear way out," McLellan said.

"I wouldn't be surprised if he went to the LDP with an olive branch of sorts to get them on the same page about budget, fiscal reform and the tax issue. But this may mean him reneging on his campaign promises to bolster public consumption through stimulus measures aimed at putting money in people's pockets."

"The irony of it all, and I believe Kan is well meaning, if his moves over the next few months are viewed as tepid, and he will be scrutinized following this monumental showdown with Ozawa, he could be facing a snap election in March, which would certainly seal his fate," said McLellan.

On a positive note for some pundits, both political and financial, Kan's victory removes mounting consternation that an Ozawa-led government would drive bond yields higher after he promised to double the prime minister's 915 billion yen (11 billion U.S. dollar) stimulus plan announced last week.