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.

Japan’s shaky ruling coalition is likely to lose its majority in the upper house, exit polls showed after Sunday’s election, potentially heralding political turmoil as a tariff deadline with the United States looms.

Exit polls suggest Prime Minister Shigeru Ishiba's coalition is likely to lose a majority its majority in the smaller of Japan’s two parliamentary houses in a key election.