Japan PM suffers election drubbing

TOKYO (Reuters) - Prime Minister Shinzo Abe's conservative ruling camp suffered a crushing defeat in a Japanese upper house election on Sunday but the 52-year-old leader insisted he would stay in his job.

"I am determined to carry out my promises although the situation is severe," a weary and drawn-looking Abe said after acknowledging he was responsible for the huge loss.

"We need to restore the people's trust in the country and the government." Abe's second-in-command resigned and analysts said Abe would face pressure to follow suit.

Voters angry over a string of government scandals and gaffes, and government bungling of pension records, stripped Abe's coalition of its upper house majority in his first big electoral test since taking office 10 months ago.

Abe's coalition will not be ousted from government by a loss in the upper house because it has a huge majority in the more powerful lower chamber.

But without control of the upper chamber, where the main opposition Democratic Party will now have the most seats, laws will be hard to enact, threatening policy deadlock.

Kyodo news agency reported Abe would reshuffle his cabinet, possibly in late August.

"We need to discuss issues closely with the Democratic Party in the upper house and listen to them when necessary," said Abe.

Democratic Party leader Ichiro Ozawa, who has heart problems, failed to put in a public appearance, electing to rest after a tough campaign schedule.

Media said the LDP and its partner, New Komeito, won 46 seats compared to 60 for the Democrats.

The coalition needed 64 to keep their majority in the upper house where half of the 242 seats were up for grabs.

The LDP won 37 seats, media said, worse than the loss in 1998 that forced Ryutaro Hashimoto to resign as prime minister.

SENIOR RESIGNATION

The party's No.2 and its de facto campaign manager, Hidenao Nakagawa, resigned as secretary-general to take the blame for the abysmal showing.

Critics say Abe, who pledged to boost Japan's security profile, rewrite its pacifist constitution and nurture patriotism in schools, was out of touch with voters.

Ozawa, a pugnacious veteran who bolted from the LDP 14 years ago, had pledged to shrink income gaps, protect the weak and help farmers -- a group that had long supported the LDP.

The 65-year-old saw a doctor and was to rest for a day or two to recover from fatigue, a party official said.

Analysts said the threat of policy paralysis could hurt Tokyo shares, boost bonds and add to doubts about the timing of Japan's next interest rate hike. But investors were more focused on a broader shake-out triggered by problems in U.S. credit markets.

Some in Abe's party expressed dismay at his decision to stay. Analysts said the LDP was short of viable successors.

Abe, Japan's first leader born after World War Two, won early praise for improving ties with Beijing and Seoul that had chilled under Junichiro Koizumi, his predecessor.

But doubts about his leadership were fanned by gaffes and scandals that led two cabinet members to resign and one to commit suicide, as well as revelations that the government had lost track of millions of pension premium payments.

RESHUFFLE EXPECTED

"A fresh start with a new line-up," ran the headline over a front-page editorial in the conservative daily Sankei Shimbun.

"The first tasks facing Prime Minister Abe are to reflect on the election results and to appoint new staff to the cabinet and party posts. So many of the Abe administration's problems are rooted in bad personnel decisions," the editorial said.

A weakened ruling bloc is expected to try to bolster its hand by wooing independents and conservatives in the Democratic Party -- a mixed bag of former LDP lawmakers, ex-socialists and young conservatives, some of whom are seen as ripe for poaching.

Some analysts said a parliamentary deadlock could prompt an early lower house election, but Abe said he had no such plans.

With a massive majority in the chamber, the ruling camp could well be wary of facing voters before it has to in 2009.

(Additional reporting by Isabel Reynolds, Elaine Lies, George Nishiyama, Chisa Fujioka, Yoko Nishikawa, and Teruaki Ueno)