* Yoshihide Suga replaces long-serving Shinzo Abe
* New PM retains key ministers in posts
* Suga pledges reforms, including deregulation and digitalisation
* First priorities are to contain COVID-19, revive economy (Adds Pompeo statement)
By Linda Sieg and Sakura Murakami
TOKYO, Sept 16 (Reuters) - Yoshihide Suga became Japan's first new prime minister in nearly eight years on Wednesday, pledging to contain COVID-19 and push reforms after retaining about half of predecessor Shinzo Abe's lineup in his cabinet.
Suga, 71, said he would stick with his former boss' "Abenomics" growth policies while pushing reforms including deregulation, digitalisation and smashing of bureaucratic barriers.
Seeming to play down the possibility of an early election, he said what Japanese most wanted was to contain the coronavirus outbreak and revive the battered economy. "This is the first thing I want to work on with my new cabinet," he told reporters.
A lower house election must be held by late October 2021 but there is speculation Suga might call a poll sooner to cement his mandate.
Abe, Japan's longest-serving premier, resigned because of ill health after nearly eight years in office.
Suga served under him as chief cabinet secretary, acting as top government spokesman and coordinating policies. He also had the task of defending Abe during cronyism scandals that at times dragged down cabinet support rates.
Suga, who won a ruling Liberal Democratic Party (LDP) leadership race by a landslide on Monday, faces a plethora of challenges from the pandemic to a rapidly ageing society.
With little diplomatic experience, he must also cope with an intensifying U.S.-China confrontation, build ties with the winner of the Nov. 3 U.S. election and try to keep Japan's own relations with Beijing on track.
About half of the new cabinet are carryovers from Abe. Only two are women and the average age, including Suga, is 60.
Finance Minister Taro Aso and Foreign Minister Toshimitsu Motegi stayed on, as did Environment Minister Shinjiro Koizumi, the youngest in the cabinet at 39.
"It's a 'Continuity with a capital C' cabinet," said Jesper Koll, senior adviser to asset manager WisdomTree Investments.
At his news conference, Suga said he would implement policies to beef up Tokyo's alliance with the United States, while hoping to establish stable relationships with China and Russia.
U.S. Secretary of State Mike Pompeo issued a statement saying Washington looked forward to working with Suga and calling the U.S.-Japan Alliance "the cornerstone of peace, security, and prosperity in a free and open Indo-Pacific."
'ROUGH ROAD AHEAD'?
Yasutoshi Nishimura, Abe's pointman on COVID-19, remains economy minister, while Trade and Industry Minister Hiroshi Kajiyama, the son of a politician whom Suga regarded as a mentor, also retains his post.
Abe's younger brother Nobuo Kishi was handed the defence portfolio, while former Defence Minister Taro Kono takes charge of administrative reform.
Katsunobu Kato, formerly health minister and a close Suga ally, becomes chief cabinet secretary.
Elected by parliament earlier in the day, Suga received a formal appointment letter in a ceremony with Emperor Naruhito at which both wore face masks because of COVID-19.
Suga, unlike Abe and many other LDP lawmakers, does not hail from a political dynasty. His image has been more that of a backroom fixer than a front-line leader, although his popularity has grown since he decided to run to replace Abe.
Tomoya Masanao, head of investment firm PIMCO Japan, said Suga's goal of a more digitalised society could widen the gap between rich and poor.
"Abe's administration built political capital for itself with loose monetary and fiscal policies, a balanced and skilful diplomacy with the United States and China, and implementation of flexible domestic politic," he said.
"The new administration, on the other hand, faces a rough road ahead."
In a move that resonates with voters, Suga has criticised Japan's top three mobile phone carriers, NTT Docomo Inc , KDDI Corp and SoftBank Corp, signalling he wants more competition and lower rates.
He has said Japan may eventually need to raise its 10% sales tax to pay for social security, but not for the next decade.
Clues as to how Suga may push ahead with reforms could come from the lineup of government advisory panels such as the Council on Economic and Fiscal Policy, Koll said.
"The ambition of Mr. Suga to speed up and reinvigorate the process (of reform) is absolutely clear, but the next layer of personnel will be interesting," he said. (Additional reporting by Elaine Lies, Antoni Slodkowski, Hideyuki Sano, Kaori Kaneko, Leika Kihara, Sakura Murakami, Chris Gallagher, Chang-Ran Kim and David Brunnstrom; Editing by Gerry Doyle and Andrew Cawthorne)
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