Sheila A. Smith is a senior fellow for Japan studies at the Council on Foreign Relations.

Prime Minister Yukio Hatoyama's resignation after just eight months in office has triggered shock across Japan and raised new doubts about the country's political stability. The fact that a U.S. military base figured centrally in his decision has also generated concerns about the damage to the crucial relationship with Washington under his government.

Hatoyama pointed to two factors in his decision. The first was his inability to fulfill his campaign promise to relocate the U.S. military's Futenma Marine Air Station on Okinawa, and the resultant dissolution of the governing coalition between his Democratic Party of Japan (DPJ) and the Social Democratic Party of Japan. The United States and Japan finalized a bilateral agreement just last week that was ostensibly designed to put the discussions on relocation of this key base back on track.

But perhaps more surprising was the role of a political scandal. In Hatoyama's announcement, he also asked the party's secretary general, Ichiro Ozawa, to resign with him. Criticized early in the year for his own mishandling of money he received from his mother, Hatoyama openly acknowledged that this scandal -- as well as the highly publicized prosecutor's office investigation of Ozawa and his investments -- had undermined the DPJ's ability to present the Japanese people with a reform agenda.

At stake for the Democratic Party of Japan is its reputation as a viable alternative to the conservatives who ruled Japan for half a century. The party's overwhelming victory in last August's Lower House election demonstrated that it had succeeded in the difficult task of building a second party in Japan that could win at the polls. But today the question is whether the DPJ can offer Japan leadership, and a solid policy agenda that tackles Japan's complex governance challenges.

Perhaps as important is the DPJ's foreign and security policy vision. The U.S.-Japan alliance and the management of forty thousand U.S. troops in Japan created opportunity for opposition party critique of the old-fashioned LDP approach of solving problems behind closed doors. Public tolerance for this approach was growing thin, particularly in Okinawa where the bulk of U.S. forces are concentrated. In its rise to power, the DPJ took aim at some of these oversight practices. Likewise, it took aim at some of the allegations that "secret agreements" with Washington ran counter to government statements on nuclear weapons transit and other sensitive issues. But missing in the DPJ's policy vision was its own assessment of Japan's security environment and an articulation of the role of U.S. military forces in Japan's own strategic vision.

Today, as the impact of Hatoyama's resignation is absorbed in Tokyo, speculation abounds as to who will run in the party's leadership election scheduled for Friday. Already, Naoto Kan has declared his candidacy. Kan, one of the DPJ's founding members, is currently the deputy prime minister and minister of finance. He has been a key figure in the effort to redesign Japan's governance structures, and initially entered the cabinet to head the newly created National Strategy Council that will ultimately be responsible for long-term economic and policy coordination.

What remains to be seen is how the Democratic Party of Japan internalizes the lessons learned over the past eight months as Japan's governing party and what the legacy of Hatoyama's resignation will be. In Tokyo, there is also concern that the first effort to govern by the DPJ so badly bruised the bilateral relationship with Washington -- particularly with President Barack Obama, a president that many think shared so much of the DPJ's own goals. This will be tender territory for some time, until the DPJ finds its footing again after the Upper House election next month.

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