FACTBOX: Policy challenges facing Japan's next government

(Reuters) - The winner of Japan's election on Sunday will face a raft of challenges including growing social welfare costs in a fast-aging society and tattered public finances.

Surveys over the past week have shown the opposition Democratic Party could win the national election by a landslide, taking some 300 seats in parliament's powerful 480-seat lower house, though analysts say the victory may be less overwhelming than forecast.

An opposition victory would end more than 50 years of almost unbroken rule by Prime Minister Taro Aso's conservative Liberal Democratic Party and improve the chances of resolving a policy deadlock caused by a divided parliament, where the opposition controls the upper house and can delay bills.

Following are major challenges for a new government.

ECONOMY

Japan's economy returned to growth in the April-June quarter, pulling out of its longest recession since World War Two. But the nascent recovery was due to short-term stimulus efforts and economists say it could lose momentum late this year.

Aso's government has planned 27 trillion yen ($287 billion) in stimulus spending since the global financial crisis erupted last year. The Democrats have said the government is spending money on the wrong things, such as a museum of Japanese pop culture, adding that it would cut wasteful spending from an extra budget for the year to next March if the party takes power.

But stimulus efforts from past economic problems have left a mountain of public debt equivalent to around 170 percent of GDP, the highest among advanced nations, worrying financial markets about further debt issuance.

The Bank of Japan, with its key policy rate near zero percent, last month extended by three months the September deadline for its unconventional measures aimed at easing corporate funding strains. The focus now is on when the central bank will exit from those emergency measures.