One of his first tests will come in Japan-Russia relations, where Obuchi and outgoing prime minister Ryutaro Hashimoto scored a victory for the ruling Liberal Democratic Party (LDP) by thawing out ties with Moscow.

The Russian diplomatic success stood out as one of the bright spot for Hashimoto's LDP, which was battered at home and abroad for its indecisive economic policies. Obuchi is expected to visit Moscow later this year and has said Russian relations will be a top diplomatic concern for him.

It remains to be seen if the bland Obuchi can take over the extrovert Hashimoto's role as fishing buddy and close diplomatic partner of Russian president BorisYeltsin. Yeltsin and Hashimoto agreed in informal talks last November in the Siberian city of Krasnoyarsk to expand trade and clinch a peace treaty by the year 2000 to formally end World War Two hostilities. Obuchi said he will keep Russian relations on the path he and Hashimoto blazed. A longstanding dispute over four tiny islands North of Japan's northernmost main island of Hokkaido is at the heart of Japan-Russia relations.

Obuchi has already gained trust in many neighbouring Asian nations through his considerate and understated diplomacy that emphasises the so-called "Asian Way" of consensus rather than the high-profile approaches of Western nations. Now financial markets, voters and Tokyo's trade partners are waiting impatiently to see whether Obuchi's government, likely to be installed next week, can push through timely and effective steps to fix the ailing banking system and economy. Success will demand deft political footwork and a delicate economic balancing act.

"That's what we're sweating now,"said one diplomatic source asked about prospects for prompt policy implementation. The bitter battle to succeed prime minister Ryutaro Hashimoto, who is stepping down over the LDP's disastrous showing in a July 12 Upper House poll, has focused in public on pledges by all three candidates to enact a banking sector cleanup and stimulate limp domestic demand. But finalising party proposals and guiding vital bills through parliament will require complex deals, both with competing LDP blocs and with opposition parties, whose strong showing in the election triggered the LDP leadership contest.

"The election result has made the political situation more uncertain, so no matter who becomes (Japan's new prime minister) there will not be quick policy action," Honda Motor Co president Hiroyuki Yoshino told Reuters on Thursday.

The LDP's most urgent task is to smooth over ill-feelings sparked by the battle, which has prompted some disgruntled younger members to hint they might bolt the party -- which currently holds a13-seat majority in the key Lower House

But many question how many younger MPs have the gumption to revolt. "I don't think young LDP members will leave -- their most serious concern is a Lower House election, and Obuchi's faction has lots of money," one ex-bureaucrat said.

Internal LDP bickering aside, the opposition also poses a serious potential stumbling bloc to policy implementation. "It all depends on the opposition side," said LDP Upper House member Yasuhisa Shiozaki when asked about a possible delay in enacting the party's plan to get banks to write off bad loans and a "bridge bank" scheme to wind up failed banks while ensuring relatively sound borrowers are not robbed of credit.

The upper chamber can reject legislation -- other than the budget or treaties -- passed by the Lower House or delay action for 60 days. Such bills would then be returned to the Lower House, where a two-thirds majority is needed for passage.

How obstructive the opposition is prepared to be in an extra session ofparliament expected to open on July 30 to consider financial sector bills is an open question. The image of foreign minister Keizo Obuchi can only become brighter now that he is Japan's prime minister-in-waiting.

Seldom has a Japanese political leader come in for the fire Obuchi has endured over the past two weeks leading up to Friday's decision by the ruling Liberal Democratic Party (LDP) to make him head of the party and thus prime minister.