WRAPUP 1-Japan government mauled in election, policy at risk

* Ruling bloc to lose upper house majority – exit polls

* Policies to curb massive Japan public debt at risk

* PM Kan’s own job at risk before Sept. party leader vote

By Linda Sieg and Chisa Fujioka

TOKYO, July 11 (BestGrowthStock) – Japanese Prime Minister Naoto
Kan’s coalition government suffered a major blow in Sunday’s
upper house election, exit polls showed, threatening efforts to
curb massive public debt and putting his own job at risk.

Kan’s Democratic Party of Japan (DPJ) were set to win just 47
seats and its tiny partner, the People’s New Party (PNP), were
set to win none, losing their combined majority in parliament’s
upper house, exit polls showed.

The polls show the Democrats far short of Kan’s goal of
winning 54 seats, a result that leaves him vulnerable to a
challenge from inside his own party.

“The Democrats disappointed me. The situation has clearly
worsened in many ways. The mood of the country has become dark
after the party took power,” said Sachiko Takeda, a 64-year-old
housewife, who said she voted for the main opposition Liberal
Democratic Party in Tokyo.

The Democrats, who have relied on the support of the People’s
New Party to control the upper house, will almost certainly stay
in power by virtue of their majority in parliament’s lower house.

But they will need to seek new partners to control the upper
chamber, complicating policymaking as Japan struggles to engineer
growth and rein in public debt nearly twice the size of GDP.
See graphics:

PM support falls over sales tax: http://r.reuters.com/myv63g

DPJ lead narrows over rival: http://link.reuters.com/jev83j

Japan’s massive public debt: http://r.reuters.com/sez92m

Upper house seats before poll: http://link.reuters.com/tuv85m

More stories on the Japanese politics: [ID:nPOLJP]

The Democrats swept to power last year promising to cut waste
and focus spending on consumers to boost growth. Public backing
nosedived due to indecisive leadership and while government
ratings rose when Kan took over last month, they slipped after he
floated a rise in the 5 percent sales tax to help rein in debt.

A poor election outcome leaves Kan vulnerable to a challenge
from party powerbroker Ichiro Ozawa — a critic of his sales tax
hike proposal — ahead of a September party leadership vote. Few,
though, would expect Kan to go without a fight.

Without a coalition majority, the Democrats will need to seek
new allies, hampering their push for fiscal reform including a
possible sales tax hike.

The DPJ’s current coalition partner opposes raising the 5
percent sales tax any time soon, as do some potential allies.
Other opposition parties agree a hike is inevitable but would
probably be reluctant to help out the rival DPJ, which has not
yet mapped out any detailed tax reform proposals.

The leaders of two potential partners, Your Party and New
Komeito, which partnered with the Liberal Democratic Party until
its defeat last year, have rejected the idea of an alliance with
the DPJ.

Analysts say they might change their tune later, but would
drive hard bargains if the Democrats fare badly.

WRAPUP 1-Japan government mauled in election, policy at risk