TOKYO - New Japanese Prime Minister Yukio Hatoyama got some good news on his first full day in office as the central bank said the struggling economy was showing signs of recovery and 72 percent of voters backed his cabinet.

Yukio Hatoyama, whose Democratic Party trounced the long-dominant Liberal Democrats last month, has pledged to radically change how the country is run, wean the economy from exports and create more equal ties with close ally Washington.

He now faces pressure to make good on promises to focus spending on consumers, cut waste and reduce bureaucrats' control over policy, while nurturing a nascent recovery from recession despite a huge public debt.

In one encouraging sign, the Bank of Japan upgraded its assessment of the economy, as exports and output bounced back from a steep fall triggered by the global crisis.

But analysts noted that the incipient recovery was largely due to the temporary effects of global government stimulus steps.

A big gap in supply and demand remains, meaning deflationary pressure is still very strong, said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.

For now, wary voters who handed the Democrats a huge election win appear ready to give Hatoyama a chance.

Seventy-two percent in a Kyodo news agency poll, the first since Hatoyama took office, said they backed his cabinet, compared with 48.6 percent who supported his Liberal Democratic Party (LDP) predecessor when he took office a year ago.

I want to raise the ratings even higher by showing that things are really happening and that politics has gone through a historic change, Hatoyama told reporters.

The figure was just shy of the 75.7 percent who supported Morihiro Hosokawa in 1993 at the start of Japan's only other non-LDP government. Hosokawa's unwieldy coalition lasted just eight months and in less than a year, the LDP was back.

HOW LONG HONEYMOON?

Hatoyama's new cabinet must get started quickly on tough tasks, including drafting a budget for the year from April 1 to fund its pledges to stimulate demand. Plans call for giving more money to consumers with steps such as allowances for families with children and abolishing a gasoline surcharge.

They also involve reallocating funds in a 14 trillion yen extra budget already enacted for 2009/10.

Naoto Kan, the head of a new National Strategy Bureau tasked with overseeing the budget and setting priorities, met on Thursday with new Finance Minister Hirohisa Fujii and other key ministers to discuss the way forward.

Hatoyama's choice of veteran lawmaker Fujii, 77, as finance minister has soothed some concerns about government spending and the debt burden. But the former finance mandarin's clear opposition to stepping into the market to stop the yen's rise moved currency markets even before he was sworn in.

The selection of Shizuka Kamei, the outspoken head of a tiny coalition partner, as minister for banking and market regulation also spooked some investors worried about his opposition to market-friendly reforms.
Hatoyama's Democrats, who have labor union backing, have sparked anxiety in business circles used to having their views heard by the LDP during its half century of almost unbroken rule.

New transport minister Seiji Maehara stirred uncertainty when he said he would review turnaround plans for Japan Airlines Corp, although he later told a news conference the carrier must not be allowed to fail.

His comments coincided with rival talks by Delta Airlines and American Airlines to invest in Japan Airlines as they eye growth in Japan and the rest of Asia.

The U.S.-educated Hatoyama's vow to steer Japan on a more independent diplomatic course has also raised concerns about friction with top ally the United States ahead of his diplomatic debut there next week, when he will meet President Barack Obama.

Secretary of State Hillary Clinton said on Wednesday that Washington was committed to the alliance.

This is a new government for Japan. It's a change which is dramatic, given the 50 years of LDP governmental leadership, Clinton told reporters.

But I am very confident that the strength of our relationship and our alliance will stand the test of any political changes, although there will be new policies and new approaches. I think that's only to be expected.

Hatoyama said he would also meet Russian President Dmitry Medvedev during his U.S. trip for a G20 summit of leading and emerging economies. He hoped for progress soon on a spat spanning several decades over a group of small islands north of Japan.

The most important thing is to build a relationship of trust, he said after speaking with Medvedev by telephone. We can't resolve the territories issue without a trusting relationship.

(Additional reporting by Leika Kihara, Tetsushi Kajimoto, Nobuhiro Kubo and Yoko Nishikawa. Editing by Ron Popeski)

Japan Dmitry Medvedev