TOKYO, July 21 (Reuters) - Japan's ruling coalition lost control of the upper house in an election on Sunday, further weakening Prime Minister Shigeru Ishiba's grip on power even as he vowed to remain party leader, citing a looming tariff deadline with the United States.

While the ballot does not directly determine whether Ishiba's administration will fall, it heaps pressure on the embattled leader who also lost control of the more powerful lower house in October.

Ishiba's Liberal Democratic Party (LDP) and coalition partner Komeito returned 47 seats, short of the 50 seats it needed to ensure a majority in the 248-seat upper chamber in an election where half the seats were up for grabs.

That comes on top of its worst showing in 15 years in October's lower house election, a vote which has left Ishiba's administration vulnerable to no-confidence motions and calls from within his own party for leadership change.

Speaking late on Sunday evening after exit polls closed, Ishiba told NHK he "solemnly" accepted the "harsh result".

"We are engaged in extremely critical tariff negotiations with the United States...we must never ruin these negotiations. It is only natural to devote our complete dedication and energy to realizing our national interests," he later told TV Tokyo.

Asked whether he intended to stay on as premier, he said "that's right".

Japan, the world's fourth largest economy, faces a deadline of August 1 to strike a trade deal with the United States or face punishing tariffs in its largest export market.

The main opposition Constitutional Democratic Party finished second with 22 seats.

Meanwhile, the far-right Sanseito party announced its arrival in mainstream politics, adding 14 seats to one elected previously. Launched on YouTube a few years ago, the populist party found wider appeal with its 'Japanese First' campaign and warnings about a "silent invasion" of foreigners.

'HAMMERED HOME'

Opposition parties advocating for tax cuts and welfare spending struck a chord with voters, as rising consumer prices - particularly a jump in the cost of rice - have sowed frustration at the government's response.

"The LDP was largely playing defence in this election, being on the wrong side of a key voter issue," said David Boling, a director at consulting firm Eurasia Group.

"Polls show that most households want a cut to the consumption tax to address inflation, something that the LDP opposes. Opposition parties seized on it and hammered that message home."

The LDP has been urging fiscal restraint, with one eye on a very jittery government bond market, as investors worry about Japan's ability to refinance the world's largest debt pile. Any concessions the LDP must now strike with opposition parties to pass policy will only further elevate those nerves, analysts say.

"The ruling party will have to compromise in order to gain the cooperation of the opposition, and the budget will continue to expand," said Yu Uchiyama, a politics professor at the University of Tokyo.

"Overseas investors' evaluation of the Japan economy will also be quite harsh."

Sanseito, which first emerged during the COVID-19 pandemic spreading conspiracy theories about vaccinations and a cabal of global elites, is among those advocating fiscal expansion.

But it is its tough talk on immigration that has grabbed attention, dragging once-fringe political rhetoric into the mainstream.

It remains to be seen whether the party can follow the path of other far-right parties with which it has drawn comparisons, such as Germany's AfD and Reform UK.

"I am attending graduate school but there are no Japanese around me. All of them are foreigners," said Yu Nagai, a 25-year-old student who voted for Sanseito earlier on Sunday.

"When I look at the way compensation and money are spent on foreigners, I think that Japanese people are a bit disrespected," Nagai said after casting his ballot at a polling station in Tokyo's Shinjuku ward.

Japan, the world's fastest aging society, saw foreign-born residents hit a record of about 3.8 million last year.

That is still just 3% of the total population, a much smaller fraction than in the United States and Europe, but comes amid a tourism boom that has made foreigners far more visible across the country.

'Japanese First' party emerges as election force with tough immigration talk

TOKYO, July 21 (Reuters) - The fringe far-right Sanseito party emerged as one of the biggest winners in Japan's upper house election on Sunday, gaining support with warnings of a "silent invasion" of immigrants, and pledges for tax cuts and welfare spending.

Birthed on YouTube during the COVID-19 pandemic spreading conspiracy theories about vaccinations and a cabal of global elites, the party broke into mainstream politics with its "Japanese First" campaign.

The party won 14 seats adding to the single lawmaker it secured in the 248-seat chamber three years ago. It has only three seats in the more powerful lower house.

"The phrase Japanese First was meant to express rebuilding Japanese people's livelihoods by resisting globalism. I am not saying that we should completely ban foreigners or that every foreigner should get out of Japan," Sohei Kamiya, the party's 47-year-old leader, said in an interview with local broadcaster Nippon Television after the election.

Prime Minister Shigeru Ishiba's Liberal Democratic Party and its coalition partner Komeito lost their majority in the upper house, leaving them further beholden to opposition support following a lower house defeat in October.

"Sanseito has become the talk of the town, and particularly here in America, because of the whole populist and anti-foreign sentiment. It's more of a weakness of the LDP and Ishiba than anything else," said Joshua Walker, head of the U.S. non-profit Japan Society.

In polling ahead of Sunday's election, 29% of voters told NHK that social security and a declining birthrate were their biggest concern. A total of 28% said they worried about rising rice prices, which have doubled in the past year. Immigration was in joint fifth place with 7% of respondents pointing to it.

"We were criticized as being xenophobic and discriminatory. The public came to understand that the media was wrong and Sanseito was right," Kamiya said.

Kamiya's message grabbed voters frustrated with a weak economy and currency that has lured tourists in record numbers in recent years, further driving up prices that Japanese can ill afford, political analysts say.

Japan's fast-ageing society has also seen foreign-born residents hit a record of about 3.8 million last year, though that is just 3% of the total population, a fraction of the corresponding proportion in the United States and Europe.

INSPIRED BY TRUMP

Kamiya, a former supermarket manager and English teacher, told Reuters before the election that he had drawn inspiration from U.S. President Donald Trump's "bold political style".

He has also drawn comparisons with Germany's AfD and Reform UK although right-wing populist policies have yet to take root in Japan as they have in Europe and the United States.

Post-election, Kamiya said he plans to follow the example of Europe's emerging populist parties by building alliances with other small parties rather than work with an LDP administration, which has ruled for most of Japan's postwar history.

Sanseito’s focus on immigration has already shifted Japan's politics to the right. Just days before the vote, Ishiba’s administration announced a new government taskforce to fight "crimes and disorderly conduct" by foreign nationals and his party has promised a target of "zero illegal foreigners".

Kamiya, who won the party's first seat in 2022 after gaining notoriety for appearing to call for Japan's emperor to take concubines, has tried to tone down some controversial ideas formerly embraced by the party.

During the campaign, Kamiya, however, faced a backlash for branding gender equality policies a mistake that encourage women to work and keep them from having children.

To soften what he said was his "hot-blooded" image and to broaden support beyond the men in their twenties and thirties that form the core of Sanseito's support, Kamiya fielded a raft of female candidates on Sunday.

Those included the single-named singer Saya, who clinched a seat in Tokyo.

Like other opposition parties, Sanseito called for tax cuts and an increase in child benefits, policies that led investors to fret about Japan's fiscal health and massive debt pile, but unlike them it has a far bigger online presence from where it can attack Japan's political establishment.

Its YouTube channel has 400,000 followers, more than any other party on the platform and three times that of the LDP, according to socialcounts.org.

Sanseito's upper house breakthrough, Kamiya said, is just the beginning.

"We are gradually increasing our numbers and living up to people's expectations. By building a solid organization and securing 50 or 60 seats, I believe our policies will finally become reality," he said.