Japan's upper house election on Sunday dealt a big blow to the ruling coalition and sets markets up for possible policy paralysis and a bigger fiscal deficit, much of which is already priced in, analysts said.

Japanese Prime Minister Shigeru Ishiba's future was unclear Monday after his coalition appeared to have disastrously lost its upper house majority in elections that saw strong gains by a right-wing populist party.

A bad night for ruling coalition could cost the prime minister his job and make it harder to strike a deal with Washington before the August tariff deadline.

Shigeru Ishiba likes the nitty gritty of policy and making military models, but his dream job as Japanese prime minister looked at risk of coming unstuck on Sunday.

Japanese voters headed to the polls on Sunday in a tightly contested election amid public frustration over rising prices and the imminent threat of US tariffs. The ruling Liberal Democratic Party (LDP) and its junior coalition partner Komeito need to secure a combined 50 seats to retain an overall majority in the upper house but the latest polling shows they might fall short.