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 was clinging on Monday even after his coalition disastrously lost its upper house majority, as painful new US tariffs loom.

The Japanese government said it is responding to "crimes and nuisances committed by some foreigners and inappropriate use of various systems."

Japan's shaky minority government is poised for another setback in an upper house vote on Sunday, an outcome that could jolt investor confidence in the world's fourth-largest economy and complicate tariff talks with the United States.

Unlike the European Union, the Japanese government has made no indication it plans to impose any kind of reciprocal tariff on the U.S.

Japan has worked hard to attract foreigners to boost its sluggish economy but now the perception there are too many has prompted the creation of a new task force, as competition for votes heats up ahead of Sunday’s national election.

Japan on Tuesday set up an administrative body aimed at easing citizens' concerns over the rapid rise in the number of foreigners in recent years, as policies concerning non-Japanese residents emerge as a key issue in Sunday's national election.

A Japanese government official called on China to expand a program allowing certain mainland investors to put more money abroad, citing “strong enthusiasm” for Japanese stocks.

Shigeru Ishiba of the long-governing Liberal Democratic Party could face calls to resign if his party fares poorly in Sunday’s Upper House elections.