By Isabel Reynolds
TOKYO (Reuters) - Japan's tiny Social Democratic Party (SDP) decided Sunday to leave the ruling coalition ahead of an election, as unpopular Prime Minister Yukio Hatoyama faced calls to step down over broken campaign promises.
The departure of the SDP is a blow to Hatoyama, already seen by voters as a weak leader, damaging his Democratic Party's chances of winning a majority in an upper house election expected in July, which it needs to pass bills smoothly.
It does not force the Democrats out of power since they boast a massive majority in parliament's more powerful lower house, but may distract from the government's struggle to rein in debt while nurturing a fragile economic recovery.
"While global financial markets ... remain jittery over Europe's fiscal problems, I'm concerned that the political turmoil and vacuum in Japan will give stock and currency markets anxiety that appropriate policy steps won't be implemented, prompting 'Japan selling' among overseas investors," wrote Takahide Kiuchi, chief economist at Nomura Securities.
SDP leader Fukushima Mizuho announced the decision to leave the ruling bloc after a meeting of regional party leaders, adding the reason was Hatoyama's decision to abandon a pledge to move a U.S. airbase off Japan's southern Okinawa island.
"As the Social Democratic Party, we want to keep the promises we make to the people," she told a news conference.
Friday, Hatoyama dismissed Fukushima from her cabinet post after she refused to sign off on a U.S.-Japan deal to move a U.S. Marine base on the southern island of Okinawa from a city center to a less populous area. But he had urged her to keep her party in the ruling coalition.
STRUGGLING PM VOWS TO STAY
Hatoyama had raised hopes of Okinawa residents during his successful election campaign last year that the Futenma base could be moved off the island.
Coalition and opposition parties called for Hatoyama to resign for failing to keep his promise on Futenma or to meet a self-imposed, end-of-May deadline for finding a solution acceptable to all the parties.
He said Saturday he would stay on. Some in his own party think he should step down, but time is short for replacing him ahead of the upper house poll, expected on July 11.
Hatoyama's government is seen to have wobbled on a range of promises, from cash allowances for parents of young children to abolishing highway tolls, depressing voter support to just over 19 percent in a poll published by Kyodo news agency Sunday.
"The prime minister said he was putting his job on the line, so naturally, he should resign," said Yoshihisa Inoue, secretary-general of the opposition New Komeito party.
"I think that Futenma symbolizes the problem with the nature of the Hatoyama cabinet and politics, that they easily break promises with the people and apologize but take no responsibility."
Fukushima said there was no possibility of returning to the coalition, even if Hatoyama were to step down, because that would not change the U.S.-Japan agreement on moving the Futenma base.
But the SDP might continue to cooperate with the Democrats in the election campaign in some local areas, she added.
Some analysts say Hatoyama will in any case likely cling to his job until a party leadership election in September.
"I think Hatoyama will stay until September," said Gerry Curtis, a professor at Columbia University. "They're not going to do well in the election, but it is not clear how badly they are going to do," he said.
Much would depend, he said, on how many disillusioned independent voters stayed at home on polling day.
"I think a lot of people may come out to vote to express their disgust with the party."
(Additional reporting by Linda Sieg and Tetsushi Kajimoto; Editing by Ron Popeski)