* Japan Democrats may need new allies in upper house
* Coalition dynamics could complicate fiscal reform
* PM Kan may face challenge if party falls short at polls (Adds details, background)
By Linda Sieg
TOKYO, June 26 (Reuters) - Japan’s ruling Democratic Party could well fall short of an outright majority in a July 11 upper house election and may need to find new allies to control the chamber and smooth policymaking, media reported on Saturday.
That would complicate efforts by Prime Minister Naoto Kan to push ahead with efforts to rein in Japan’s huge public debt, including a possible doubling of the 5 percent sales tax, that he has put at the heart of his campaign in a risky policy shift.
The Democratic Party of Japan (DPJ), which swept to power for the first time last year promising to cut waste and focus spending on consumers, will run the government regardless of the result of next month’s poll because it controls the lower house.
But the party needs a majority in the upper chamber to enact laws and implement policies smoothly. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on Japan voter support: r.reuters.com/myv63g
Graphic on voter intention: link.reuters.com/jev83j
Graphic on Japan's fiscal woes: r.reuters.com/sez92m
For more stories on the Japanese politics, click [ID:nPOLJP] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
A June 24-25 survey by the Asahi newspaper showed the DPJ could win about 54 of the 121 seats up for grabs in the 242-member upper house, short of the 60 it needs for an outright majority but in line with a target set by Kan.
The Nikkei business daily predicted the DPJ could win more than 54, while the Yomiuri newspaper said it might get about 50.
All three newspapers said it was up in the air whether the Democrats and their current tiny ally, the pro-spending People’s New Party (PNP), could get the 56 seats they need to keep a combined majority together with an affiliated independent.
Kan, Japan’s fifth premier in three years, needs a robust showing by the Democrats to fend off any post-election challenge from party rivals, such as powerbroker Ichiro Ozawa, that could make him the latest of the country’s revolving-door leaders.
Support for the Democratic-led government and the party has rebounded since Kan took over from his unpopular and indecisive predecessor Yukio Hatoyama earlier this month.
But the government’s ratings slipped back to around 50 percent after Kan called for debate on raising the 5 percent sales tax to help curb a public debt already about twice the size of the economy, the worst among advanced industrial nations.
Kan has said he would seek help from opposition parties if his coalition falls short, and while several have ruled out a tie-up, analysts say they could change their tune after the vote.
The Asahi newspaper said the small Your Party, formed by defectors from the long-dominant Liberal Democratic Party (LDP) before its historic ouster last year, could take around nine seats while the New Komeito, a former LDP ally, might get around eight seats. The LDP itself looked set to win about 41 seats.
Your Party leader Yoshimi Watanabe insists the government should do more to cut waste before tackling a sales tax rise, while the New Komeito wants drastic tax reform to ensure revenues to cover the bulging social security costs of an ageing society.
The newspapers said the Democrats’ erstwhile ally, the PNP, would have trouble retaining the three seats it has in the upper house, a result that analysts say might actually help the Democrats’ push for fiscal reform since party leader Shizuka Kamei is an outspoken advocate of big spending to boost growth.
Editing by Jeremy Laurence