July 21 (Bloomberg) -- Prime Minister Taro Aso dissolved Japan’s parliament, clearing the way for an Aug. 30 election that polls indicate will hand power to the opposition Democratic Party of Japan for the first time.

Lower-House Speaker Yohei Kono announced the dissolution in parliament today to a chorus of cheers. Aso’s ruling Liberal Democratic Party, in power for all but 10 months since 1955, will defend a two-thirds majority in the election.

“The era of one-party dominance is over,” said Gerald Curtis, professor of Japanese politics at Columbia University in New York. “This is the first election since the LDP was formed when just about everybody believes that the chance for a change of the party in power is very real.”

The DPJ plans to encourage consumer spending by providing as much as 5.3 trillion yen ($56 billion) in child support, eliminating road tolls and lowering gasoline taxes. The party also aims to shift tax money from public works spending to strengthen social security, DPJ legislator Tetsuro Fukuyama said in a July 14 interview.

“They are going to increase the purchasing power of the people directly and they are going to fund this by cutting out wasteful spending,” said Jesper Koll, Tokyo-based chief executive officer of hedge fund adviser TRJ Tantallon Research Japan. “That’s a good, sensible economic policy to have.”

Poll Lead

Forty-two percent of respondents in an Asahi newspaper poll published yesterday said they would vote for the DPJ, compared with 19 percent for the LDP. The opposition, which has controlled the less-powerful upper house since 2007, had a public approval rating of 31 percent, compared with 20 percent for the LDP, according to the poll.

Aso, who came to office last September, has resisted calls from within his own party to resign before the election. His administration has been plagued by cabinet scandals and a deepening economic recession.

“I’m sorry my unnecessary remarks damaged credibility in politics,” said Aso in today’s televised press briefing. Since taking power, he has said doctors lack common sense and mothers need discipline more than their children, angering both groups. “I also apologize the LDP’s lack of unity” created public mistrust.

Aso, 68, pledged to revive the world’s second largest economy and improve the financial security of voters with free pre-schools and higher wages for part-time workers.

Koizumi Triumph

Former Prime Minister Junichiro Koizumi led the ruling party to a landslide victory in September 2005, with the LDP winning two-thirds of seats in the 480-member chamber. Curtis predicts the DPJ will win a majority in the next election because Japan’s voters want change, before forming a coalition government with other parties.

“This is not just an election to end LDP government,” DPJ President Yukio Hatoyama told his party’s lawmakers this morning. “We must remember the historical mission that this is going to be a big, revolutionary race to start Japanese politics anew.”

Business leaders called for economic policy debates as Japan struggles with the worst recession in the post-war era.

“In the upcoming general election, we’d like parties to present concrete action plans in response to the current economic crisis, and mid- to long-term policies toward the future,” Takashi Kawamura, chief executive of Hitachi Ltd., one of Japan’s biggest employers with more than 360,000 workers, a manufacturer which hires more than 36,000 employees, said in a statement today.

The Nikkei 225 Stock Average rose 256.70, or 2.7 percent, to 9,652.02 in Tokyo, a fifth-straight climb. The broader Topix index added 2.7 percent to 901.55, the steepest gain since May.

To contact the reporter on this story: Sachiko Sakamaki in Tokyo at Ssakamaki1@bloomberg.netTakashi Hirokawa in Tokyo at thirokawa@bloomberg.net

Last Updated: July 21, 2009 07:22 EDT