Japan PM to pursue thaw in India ties, boost trade

* India seeks details of China policy, East Asia initiative
* Two sides want to engineer further thaw in ties, trade
* Hatoyama's ratings falling at home after ex-aides arrested
By Krittivas Mukherjee
NEW DELHI, Dec 28 (Reuters) - Japan's prime minister, who has promised to forge a new place for east Asia in international diplomacy, opened three days of talks in India on Monday focusing on engineering a further thaw in relations and boosting trade.
Yukio Hatoyama took office in September after 50 years of almost uninterrupted rule by the conservative, pro-U.S. Liberal Democratic Party, but has since seen his popularity ratings slide to 50 percent in a survey published on Monday.
Japan and India, Asia's largest and third largest economies, have been working at improving ties since Japan slapped sanctions on India in response to its 1998 nuclear tests.
Hatoyama launched his visit by meeting Indian industrialists, including Tata group chairman Ratan Tata and Reliance Industries (RELI.BO) head Mukesh Ambani, at a Mumbai hotel which was one of the targets attacked by gunmen in November 2008. He was due later to hold talks with his Indian opposite number, Manmohan Singh.
India, long a top recipient of Japanese aid, wants details of Hatoyama's foreign policy, particularly Tokyo's attempts to pursue a foreign policy more "independent" of Washington and improve ties with China, New Delhi's longtime rival.
New Delhi will want to know more about India's place in Hatoyama's proposed East Asian community with a single currency, inspired by the 27-nation European Union.
"Yukio Hatoyama ... is unlike any other Japanese leader that the Indian side has dealt with in the past decade," wrote Siddharth Varadarajan, a senior editor at The Hindu newspaper.
"Hatoyama's vision of an East Asian Community and his desire to work with China provides India and Japan with an opportunity to build their bilateral relations on ground firmer than the quicksand of 'balance of power'," he said.
That was a reference to a view in New Delhi that looks at Japan as a hedge against a rising China. BOOSTING TRADE, MILITARY TIES
Trade, analysts say, is one way of cementing that partnership underscored by closer recent military ties and Japanese support for last year's landmark U.S.-India civilian nuclear deal.
"The two sides...are in the process of concluding discussing a Comprehensive Economic Partnership Agreement (CEPA)," said India's foreign ministry spokesman, Vishnu Prakash. Twelve rounds of talks on the agreement had already taken place, he said.
Japan is India's sixth largest investor. Bilateral trade, more than $12 billion in 2008-09, is targetted to climb to $20 billion by next year.
Hatoyama's talks in India could also focus on on climate change policies -- with the two countries on opposite sides of the debate, particularly on expanding the scope of Japanese support for renewable energy projects in India.
Indian officials said the sides would also discuss Japan's offer to train former Taliban fighters as part of a $5 billion Japanese aid package for Afghanistan. India remains uncomfortable about co-opting the Taliban into any power structures in Kabul.
Hatoyama's government will likely seek to present the visit as a success as domestic criticism rises. Last week he approved a record trillion dollar budget, which will further inflate Japan's massive debt as the government struggles with the weak economy.
Japanese voters are also expressing growing doubts about Hatoyama's ability to make tough foreign policy decisions, and the arrest of two former aides has spurred calls for more explanation of a scandal over false political funding records. (Additional reporting by Rina Chandran in MUMBAI and Isabel Reynolds in Tokyo; Editing by Bappa Majumdar and Ron Popeski)