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A ruling party-backed candidate lost an election for governor in southern Japan on Sunday, public broadcaster NHK said, a new sign of trouble for Prime Minister Yukio Hatoyama ahead of a mid-year national election.

The defeat could embolden opposition parties to step up calls for probes into a funding scandal embroiling the ruling Democratic Party’s No.2 leader, stalling debate on a record budget for the year from April 1 intended to keep a fragile economic recovery on track.

NHK said that exit polls and its own projections showed Hodo Nakamura, 59, backed by the opposition Liberal Democrats and the smaller New Komeito party had defeated Tsuyoshi Hashimoto, 40, supported by the Democratic Party and its two partners.

Support for the five-month-old government has sunk below 50 percent in recent polls because of the scandal ensnaring the Democrats’ secretary-general, Ichiro Ozawa, seen by many as the real power behind the government and a master strategist whose skills are vital for an upper house election expected in July.

Hatoyama’s popularity has also been hit by voter concerns over his ability to make tough decisions on the economy and diplomacy and a separate funding scandal of his own.

The Democrats swept to power in a landslide victory in a lower house election last August, promising to put more money in consumers’ hands to bolster economic growth, to cut waste and to wrench control of policy-making from career bureaucrats.

But they need to win a majority in the upper house in order to drop an awkward coalition with two smaller parties, whose differences over policy complicate decision-making.

A ruling bloc loss at the polls could even lead to policy gridlock as the government struggles to balance the need to stimulate the economy with the need to rein in Japan’s huge public debt.

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