YUZAWA (Japan) • It is noon on a warm day in the Japanese town where Mr Yoshihide Suga, Japan's next prime minister, grew up, but more than half the stores in a downtown shopping arcade are shuttered and pavements stretch empty except for the rare elderly passer-by.

A building proclaiming "I Love Yuzawa" stands abandoned. A giant department store nearby hulks over the street, mostly unusable because it does not meet earthquake safety standards but is too expensive to tear down.

The remote part of Yuzawa where Mr Suga grew up, 480km north-east of Tokyo, captures key challenges his administration will face: Half the residents in the area are over 60. Depopulation and ageing have meant a dramatic fall in tax revenue, pushing the town's government, reliant on support from Tokyo, to consider merging with other towns in Akita prefecture.

"Japan is the world's fastest-ageing nation, Akita the fastest-ageing prefecture and Yuzawa one of the worst in Akita," said town employee Toru Abe, noting that close to 40 per cent of all Yuzawa residents are over 65, compared with 28 per cent for the nation.

"If we didn't have fiscal support from the central government, we couldn't make ends meet," said Mr Abe. Of the town's annual budget of 27 billion yen (S$348 million), he said, only about a fifth comes from taxes.

Mr Suga was chosen leader of Japan's ruling party on Monday and will be elected prime minister today, succeeding the long-serving Mr Shinzo Abe, who is resigning for health reasons.

Yuzawa, which sees 2m snowfalls that locals say make them tough, has marked Mr Suga, 71, as a self-made politician among hereditary lawmakers from wealthy families.

It has also influenced his best-known policies.

These include promoting inbound tourism, reforming the country's vast agricultural cooperative network and introducing a "hometown tax" - a system allowing people to pay local taxes to an area other than where they live and, in return, receive deductions and local delicacies like beef or rice.

"He talked about it long before then, saying he grew up in Akita and benefited from tax revenues, then moved down here and feels strange not paying anything. He wondered if there was a system to make it possible," said retired bureaucrat Hiromi Okazaki, who worked for Mr Suga in the Internal Affairs Ministry when Mr Suga ran it and introduced the scheme in the 2000s.

Most residents in Yuzawa blame the economic decline on the devastating population slide, largely due to a low birth rate and lack of jobs in the town reliant primarily on rice farming.

With 16.4 deaths for every 1,000 residents last year, Akita has Japan's highest death rate. That compares with 11.2 deaths nationwide. Its birth rate, 4.9 per 1,000, is Japan's lowest.

Town officials project 400 million yen in revenue from Mr Suga's hometown tax in the fiscal year up to the end of March. It is not enough to turn its fortunes around, they say, but in Yuzawa, every bit helps.

By a row of cigarette vending machines in the city centre hangs a sign: "Tobacco taxes are important for our area. Let's buy cigarettes!"

Last year, the tax brought in 209 million yen, it says.

In 2015, Akita crafted a plan to stem the demographic decline with steps such as expanding medical subsidies for schoolchildren, providing extra daycare support and helping workers repay student loans. But local residents say it is hard to revive an ageing economy.

"If only we had places people wanted to come, like shops," said Ms Momoko Takahashi, 33, a Yuzawa native preparing to open a cafe next month. "Even a big supermarket would help."

Mr Suga's family home still stands in a remote part of Yuzawa. The place has been empty since his ageing mother moved to a nursing home three years ago.

The Akinomiya hamlet was known for its rice fields, and adult male farmers left their families each winter to work in Tokyo to make ends meet - a practice Mr Suga's father Wasaburo helped eliminate by venturing into more lucrative strawberry farming and forming a cooperative.

Mr Suga helped out in the strawberry fields and was quiet and stubborn as a classmate, practising baseball for hours at night to get the third-baseman spot he wanted, said Mr Masashi Yuri, 71, who lived just a few houses away from Mr Suga.

"He doesn't show anything on his face, he doesn't show his emotions, but in the shadows, he makes extreme efforts," Mr Yuri said.

REUTERS