Japan PM avoids stirring tensions on anniversary of World War II surrender.
It managed to cling to power because it still controls the more powerful lower house.
The defeat came in the wake of a series of scandals involving members of Abe’s outgoing cabinet.
Since he took power last September three of Abe’s ministers have been forced to resign, and one committed suicide amid a financial scandal.
|Taro Aso says the party must win back
a disillusioned public [EPA]
Abe himself, though, has refused to bow to calls from party backbenchers for him to stand down, despite approval ratings nearing just 20 per cent.
Speaking after his transfer to the post of LDP secretary-general, Aso said the party had to win back a disillusioned public but faced tough times ahead with one chamber controlled by the centre-left opposition.
“The major task for us, the Liberal Democratic party, is to restore people’s trust in the party and show firm measures to cope with people’s concerns over the future,” he said.
In other key appointments, Fukushiro Nukaga, a defence minister under Koizumi, has been appointed to head the finance ministry of the world’s second largest economy, while former foreign minister Masahiko Komura takes over at defence.