Suga won 314 votes out of 462 cast by parliament's lower house members. The chamber takes precedence in electing a premier over the upper house, which was also expected to pick Suga because of a ruling bloc majority.
Domestic media said that roughly half of the new cabinet would be people from the Abe cabinet. There will be only two women and the average age, including Suga, is 60.
Among those expected to retain their jobs are key players such as Finance Minister Taro Aso and Foreign Minister Toshimitsu Motegi, along with Olympics Minister Seiko Hashimoto and Environment Minister Shinjiro Koizumi, the youngest at 39.
"It's a 'Continuity with a capital C' cabinet," said Jesper Koll, senior adviser to asset manager WisdomTree Investments.
Abe's younger brother, Nobuo Kishi, is likely to be tapped for the defence portfolio, while outgoing Defence Minister Taro Kono will take charge of administrative reform, a post he has held before.
Yasutoshi Nishimura, Abe's point man on Covid-19 response, will remain economy minister, while Trade and Industry Minister Hiroshi Kajiyama, the son of a politician to whom Suga looked up as his mentor, will also retain his post, media reported.
Katsunobu Kato, outgoing health minister and a close Suga ally, is expected to become chief cabinet secretary.
"Suga will continue Abe's economic policies and there will be no short-term impact on markets," said Kensuke Niihara, chief investment officer of State Street Global Advisors Japan.
"In the longer term, because foreign investors' interest in Japanese stocks has been low, if he presses ahead with structural reforms and deregulations, that is a theme investors like and would be a positive surprise," Niihara added.
Clues as to whether and how Suga will push ahead with reforms could come from the lineup of government advisory panels such as the Council on Economic and Fiscal Policy, Koll said.
Speculation has simmered that Suga might call a snap election for parliament's lower house to take advantage of any rise in public support, although he has said handling the pandemic and reviving the economy were his top priorities. (Reuters)