Japan PM's party seen far short of election goal

TOKYO (Reuters) - Japan's ruling Democratic Party could fall far short of Prime Minister Naoto Kan's target in this weekend's upper house poll, media said on Wednesday, putting his grip on his job at risk and foiling efforts to curb a huge public debt.

The Democratic Party of Japan (DPJ), which swept to power for the first time last year, will almost certainly run the government regardless of the outcome on Sunday as it controls the powerful lower house. But the party needs a majority in the upper chamber to enact laws and implement policies smoothly.

Kan, who took over as Japan's fifth prime minister in three years last month, has put fiscal reform at the centre of the campaign, including a possible doubling of the 5 percent sales tax to curb a public debt already nearly twice the size of GDP.

Kan has set a modest target of winning at least 54 seats, the same number that the DPJ has up for grabs in the election but fewer than the 60 it needs for an outright majority in the 242-seat chamber. Half the seats are being contested.

But a July 4-6 survey by Kyodo news agency published on Wednesday showed the DPJ might win fewer than 50 seats, and the Tokyo Shimbun newspaper forecast a similar result.

"If they get more than 50 seats, the Kan administration can continue but if below 50, calls for him to take responsibility will emerge," said independent analyst Atsuo Ito.

A result producing fewer than 50 seats would leave Kan vulnerable to a challenge from inside his own party, although the fiery former grassroots activist is unlikely to go down without a fight.

VULNERABLE TO CHALLENGE

Japanese government bond yields have fallen since Kan put fiscal reform on the agenda but a messy election outcome could weaken that trend.

"It's looking like it could be difficult for the ruling party to win an outright majority, and if that happens it could curb the market's expectations on fiscal reform, putting a floor under yields, which declined steeply in June," said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets.

Kyodo also said the DPJ and its tiny ally, the People's New Party, would have a tough time winning the 56 seats that would allow them to keep joint control of the upper chamber, meaning the Democrats would have to seek new allies.

A weak showing for the Democrats would undercut Kan's ability to get backing from other parties to implement policies. It would also raise the likelihood that DPJ powerbroker Ichiro Ozawa would back a rival to the premier in a party vote that is set for September but could be moved forward.

Support for the DPJ rebounded after Kan took over from unpopular Yukio Hatoyama last month, but has receded since he floated the possible sales tax hike.

The main opposition Liberal Democratic Party and smaller opposition groups such as the pro-reform Your Party have flatly rejected the notion of a tie-up, although analysts said they could change their tune if the Democrats do well.

"Party executives and those close to Kan are talking not of a rejig of the coalition, but of cooperation with opposition parties on a policy-by-policy basis," analyst Ito said. "In that case, they won't be able to make progress on policies ... and they will not be able to take bold measures on fiscal reform."

Kyodo said the LDP was likely to win around 46 seats, while the Your Party could win around nine.

But with a hefty chunk of voters still undecided -- Kyodo put the figure at about 40 percent -- the outlook remained murky.

"I said 51 seats and I wouldn't be surprised to see it drop, but it's impossible to tell with so many voters saying they haven't made up their minds," said Gerry Curtis, a Columbia University professor.

"At the last minute, a lot of people may hold their noses and vote for the DPJ."

(Additional reporting by Linda Sieg; Editing by Ron Popeski)