Japan's shaky government loses upper house control

By Mariko Katsumura and Kantaro Komiya

TOKYO (Reuters) -Japan's ruling coalition is certain to lose control of the upper house in Sunday's election, public broadcaster NHK reported, an outcome that further weakens Prime Minister Shigeru Ishiba's grip on power as a tariff deadline with the United States looms. 

While the ballot does not directly determine whether Ishiba's administration will fall, it heaps political pressure on the embattled leader who also lost control of the more powerful lower house in October.

Ishiba's Liberal Democratic Party (LDP) and coalition partner Komeito were certain to fall short of the 50 seats needed to secure the 248-seat upper chamber in an election where half the seats were up for grabs, NHK said early on Monday, with six seats still to call.

That comes on top of its worst showing in 15 years in October's lower house election, a vote which has left Ishiba's administration vulnerable to no-confidence motions and calls from within his own party for leadership change. 

Speaking late on Sunday evening after exit polls closed, Ishiba told NHK he "solemnly" accepted the "harsh result".

"We are engaged in extremely critical tariff negotiations with the United States...we must never ruin these negotiations. It is only natural to devote our complete dedication and energy to realizing our national interests," he later told TV Tokyo.

Asked whether he intended to stay on as prime minister and party leader, he said "that's right". 

Japan, the world's fourth largest economy, faces a deadline of August 1 to strike a trade deal with the United States or face punishing tariffs in its largest export market.  

The main opposition Constitutional Democratic Party was set to finish second, vote counts showed.

The fringe far-right Sanseito party, birthed on YouTube a few years ago, announced its arrival in mainstream politics with its 'Japanese First' campaign and warnings about a "silent invasion" of foreigners winning broader support. It was set to add at least 13 seats to one elected previously.

'HAMMERED HOME'

Opposition parties advocating for tax cuts and welfare spending struck a chord with voters, as rising consumer prices - particularly a jump in the cost of rice - have sowed frustration at the government's response.

"The LDP was largely playing defence in this election, being on the wrong side of a key voter issue," said David Boling, a director at consulting firm Eurasia Group.

"Polls show that most households want a cut to the consumption tax to address inflation, something that the LDP opposes. Opposition parties seized on it and hammered that message home." 

The LDP has been urging fiscal restraint, with one eye on a very jittery government bond market, as investors worry about Japan's ability to refinance the world's largest debt pile. Any concessions the LDP must now strike with opposition parties to pass policy will only further elevate those nerves, analysts say.

"The ruling party will have to compromise in order to gain the cooperation of the opposition, and the budget will continue to expand," said Yu Uchiyama, a politics professor at the University of Tokyo.

"Overseas investors' evaluation of the Japan economy will also be quite harsh."

Sanseito, which first emerged during the COVID-19 pandemic spreading conspiracy theories about vaccinations and a cabal of global elites, is among those advocating fiscal expansion.

But it is its tough talk on immigration that has grabbed attention, dragging once-fringe political rhetoric into the mainstream.

It remains to be seen whether the party can follow the path of other far-right parties with which it has drawn comparisons, such as Germany's AfD and Reform UK.

"I am attending graduate school but there are no Japanese around me. All of them are foreigners," said Yu Nagai, a 25-year-old student who voted for Sanseito earlier on Sunday.

"When I look at the way compensation and money are spent on foreigners, I think that Japanese people are a bit disrespected," Nagai said after casting his ballot at a polling station in Tokyo's Shinjuku ward.

Japan, the world's oldest society, saw foreign-born residents hit a record of about 3.8 million last year. 

That is still just 3% of the total population, a much smaller fraction than in the United States and Europe, but comes amid a tourism boom that has made foreigners far more visible across the country.

(Reporting by Tim Kelly, Mariko Katsumura and Rikako Maruyama; Writing by John Geddie; Editing by Clarence Fernandez, Edmund Klamann, Toby Chopra, Susan Fenton and Chizu Nomiyama)