Japan's ruling party takes severe drubbing in upper house election

Japan's voters have fired a warning shot across the bows of Prime Minister Naoto Kan's coalition government, slashing its upper-house majority and dealing him a potentially fatal political blow just a month after he took office.

With results still coming in from yesterday's election, exit polls suggest that Mr Kan's Democratic Party (DPJ) will fall well short of its 54-seat target, even with the help of its coalition partner, the People's New Party.

The election is the first since the DPJ dramatically ended over half a century of nearly uninterrupted conservative rule last September when it swept the Liberal Democrats from power.

The party has largely squandered its popularity amid accusations of corruption and policy flip-flops. Mr Kan's predecessor, Yukio Hatoyama, quit last month after performing a humiliating U-turn on the relocation of a US military base in the southern prefecture of Okinawa.

Political commentators billed yesterday's poll as a test of Mr Kan's ability to pull his party out of the fire. Japan's fifth prime minister in three years, he took office on 8 June with approval ratings of over 60 percent. But he has since seen his popularity plummet by 20 points as he contemplates tackling a long taboo by hiking the consumption tax.

Mr Kan (63) says the tax is needed to boost welfare spending and rescue Japan from a "quagmire" of debt, which he warned last month could plunge the country's roughly 435 trillion yen (£3.3trn) economy into a Greek-style crisis. Japan's vast public debt is approaching 200 per cent of GDP, or nearly ¥7m per citizen – double the Greek figure and the highest in the industrialised world.

Floating the tax just before the election, however, dented his government ratings and forced the Prime Minister to postpone a proposed 5 per cent hike until the next lower house poll – due before late 2013. Mr Kan ignored warnings from some DPJ MPs to hold fire on the tax until the party was on firmer electoral ground.

Half the seats in the less-powerful 242-member upper house were up for grabs. The Democrats majority in the lower house meant it was never in fear of losing power but the worse-than-expected results could prove prophetic.

Mr Kan is essentially a provisional leader until the Democrats' leadership election in September, so any sign that the bottom is falling out of his popularity will likely be costly. Japan's upper house elections have often proved a barometer of prime ministerial future's – Ryutaro Hashimoto in 1998 and Shinzo Abe in 2007 quit after drubbings in similar polls.

The result is also likely to complicate the Prime Minister's debt pledges and embolden the opposition LDP, which has emerged stronger from the election. Early indications were that the LDP would finish with 81 to 83 seats, up from 71.

The Prime Minister has proposed a UK Labour Party-style "Third Way" approach, switching taxes and spending away from wasteful infrastructure and construction projects to health, welfare and the environment. The agenda means wrestling control over policy from Japan's elite bureaucrats, a fight that demands a strong parliamentary majority.

A former civil activist, Mr Kan has pledged not to resign whatever the results of the election. DPJ insiders for and against him were briefing the media yesterday with some calling for him to take the blame for the defeat. "There is no doubt that the Prime Minister's remarks on the consumption tax affected the campaign," one DPJ executive told state broadcaster NHK. "He will need to clarify his responsibility."