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Japan PM's party at risk of setback in Sunday vote

TOKYO, July 11 (Reuters) - Japan’s ruling coalition could lose control of parliament’s upper house in an election on Sunday that could stall efforts to curb a huge public debt and ultimately put Prime Minister Naoto Kan’s job at risk.

Sagging support for the leading Democratic Party of Japan (DPJ), which surged to power for the first time last year, rebounded after Kan -- Japan’s fifth leader in three years -- replaced his indecisive predecessor last month.

But ratings slipped again after Kan floated the long taboo topic of raising sales tax to curb a public debt, already close to twice the size of the nearly $5 trillion economy. He also struggled to persuade voters he had a clear plan to fix Japan’s economy.

Kan has since stressed he would not hike the sales tax “one yen” without seeking a mandate in the next lower house poll, which must be held by late 2013, but stressed that Japan must make tough decisions to avoid a Greek-style debt crisis.

“Ten to 30 years from now, will people look back and think, the prime minister said something catchy but things went wrong, or ... the prime minister said what was bitter and harsh, but that was the start of rebuilding our economy and social security system?” Kan said on Saturday as he wound up his campaign.

“I am determined to do something that will not go down in history with shame.”


See graphics:

PM support falls over sales tax:

DPJ lead narrows over rival:

Japan's massive public debt:

Upper house seats before poll:

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The DPJ, which ousted its long-dominant rival last year with pledges to cut waste, pry control of policymaking from bureaucrats and focus spending on households to boost growth, will almost certainly run the government whatever the outcome of Sunday’s vote because it controls the powerful lower house.

But the party needs a majority in the upper chamber to avoid policy deadlock and begin taking steps to reduce a public debt that is the worst among advanced countries.

Media surveys last week showed the DPJ would likely win around 50 or even fewer of the 121 seats up for grabs in the 242-member chamber -- well short of Kan’s target of keeping all 54 seats the Democrats have up for re-election.

That would deprive the DPJ and its tiny coalition partner, the pro-spending People’s New Party, of a majority in the upper house. The Democrats would be forced to seek new allies, complicating the government’s ability to forge ahead with the fiscal reform that Kan has put at the heart of his campaign.

It would also leave Kan vulnerable to a challenge from party powerbroker Ichiro Ozawa -- a critic of his sales tax proposal -- ahead of a September party leadership vote. Few, though, would expect Kan to go without a fight.

Many voters have been having trouble finding a party to their taste -- although a flurry of new, small parties has broadened their options -- with surveys showing a hefty chunk were undecided, making precise predictions difficult.

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. [ID:nTOE661014]

The leaders of two potential partners, the small, pro-reform 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. (Editing by Ralph Boulton)