With the lower house election quickly approaching, it appears that the opposition Democratic Party of Japan (DPJ) is poised for a big victory. Analysts expect the DPJ to win more than 300 seats out of 480 seats.

The win would end the 50-year ascendancy of the Liberal Democratic Party (LDP). Although no one can predict how the DPJ will perform once in charge, the shift alone is an important event for Japan as well as its neighbors and allies.

DPJ leader Yukio Hatoyama has eagerly discussed his party’s economic model, while shying away from controversial foreign and defense policy proposals. According to local sources, the DPJ is still divided regarding the country’s geopolitical relationship with the US. But these are issues that will become more important after the uppper house election in 2010.

Nevertheless, DPJ has promised to grow domestic demand and shift away from its export-driven model that favors big businesses, an ambitious goal that will require a great deal of effort–especially given the state of the Japanese economy and government’s massive debt burden. Nevertheless, the DPJ has indicated that it won’t raise the consumption tax for several years.

If those policies succeed, investments will favor the nonmanufacturing sector (i.e. services), as opposed to established manufacturers and exporters. The latter have benefited handsomely from the LDP’s ascendancy, especially in the 1990s, and made rewarded the party through huge financial contributions. Such a shift would also strengthen the Japanese yen.

That being said, the DPJ is a center-left party and will also focus on other important issues like civil service reform, pension reform and medical reform. Observers also expect it to address social issues, such as stagnating wages, inadequate labor protection rules and spotty child-care allowances.

Investors should monitor key cabinet positions to see whether pro-growth people will be appointed. The most important appointments will be in Welfare, Finance, Agriculture, Trade/Industry, Internal Affairs and Communications, Land & Transport, and Administrative Reform. The party’s Policy Affairs Chairman will also be an important appointment.

Although the historic significance of the upcoming election for the country shouldn’t be downplayed, it will take a lot of effort to shake Japan from its economic torpor.

Investors should keep an open eye to the new government’s progress; any positive results will be enough to attract real interest from institutional investors. For those seeking early exposure to these changes, look at banks, retailers and tourist-related services and real estate companies. Transitioning out of stocks issued by exporters would also be a good idea.