Prime Minister Yukio Hatoyama's decision to abandon a pledge to move the US Marine base off Japan's southern Okinawa island has upset the tiny, leftist Social Democratic Party (SDP) as well as residents of the island.
The SDP leader, Consumer Affairs Minister Mizuho Fukushima, rejected the deal. Coalition officials said the premier had sacked her after she refused to change her mind.
Analysts said Hatoyama was likely to cling to his own job, despite failing to keep his campaign promise or meet a self-imposed end-of-May deadline for resolving the feud, and that a split in the ruling bloc, while ill-timed, would not be fatal.
"I am painfully aware of the feeling of the people of Okinawa that the present problem of the bases is an unfair discrimination against Okinawa," Hatoyama told a news conference.
"At the same time, the existence of the US bases is essential for Japan's security," Hatoyama said, adding he would keep working to reduce the burden on Okinawa, reluctant host to about half the US forces in Japan.
Hatoyama's support ratings, which have already sunk to around 20 percent on doubts about his leadership, could well fall further on the fuss, which has distracted the government as it tries to thrash out mid-term plans for cutting huge public debt and engineering growth despite a fast-ageing population.
"Given the sharp deterioration in Prime Minister Hatoyama's popularity, it raises the question of the government's willingness to put its fiscal program into place," said Derek Halpenny, European head of global currency research at the Bank of Tokyo-Mitsubishi UFJ in London.
"The government is supposed to announce fiscal measures in June but if it shies away from taking bold steps, that's where we could see market impact."
In a statement stressing the need to keep US troops in Japan to deter threats, US and Japanese foreign and defense ministers said the functions of the Futenma base would be shifted to the Henoko area of the northern Okinawa city of Nago and nearby waters, largely in line with a 2006 deal.
Hatoyama, who took office promising a diplomatic stance less dependent on close ally Washington, has underlined the need for tight US-Japan ties since the sinking of a South Korean naval ship blamed on North Korea.
The pacifist Social Democrats wanted the base off the island, which is host to about half the US forces in Japan.
It was not clear if Fukushima's departure meant her party would leave the coalition, and Hatoyama said he would work to keep the coalition together.
Some SDP members want the party to leave, others want to stay in power to influence policy. The party will discuss on Sunday whether to bolt, party executives said.
A split would be ill-timed for Hatoyama's Democratic Party ahead of an upper house election expected in July, but would not topple the government, since the Democrats have a huge majority in parliament's more powerful lower house.
The Democrats could lose SDP cooperation in the upcoming election campaign, further eroding their chances of winning the outright majority they need to enact bills smoothly.
"If the SDP leaves the coalition, it would hurt the Democrats in the election by depriving their candidates of SDP votes, although the damage might not be huge," said Mikitaka Masuyama at the National Graduate Institute for Policy Studies.
Some analysts say the SDP's departure could make it easier for Hatoyama to make decisions by reducing policy gaps among coalition partners.
But the prolonged furor is sure to damage Hatoyama's already battered image among voters. "There's not much room for support rates to fall further. So support might not go down a lot, but it certainly won't be rising either," Masuyama said.
