Ichiro Suzuki
On October 27 Japan’s voters gave a blow to the ruling coalition of the Liberal Democratic Party (LDP) and Komeito in the general election of the House of Representatives (the Lower House). They were brought down from a comfortable majority to less than a half in the House. Japan now has followed the suit of other democracies, punishing the incumbent government in recent elections as voters’ anger grew on rising prices.
Of course, inflation is essentially attributed to factors that are beyond the government’s control, but someone has to be blamed for it. Regardless of the inflation’s causes, rising prices are hitting Japanese consumers who have been for decades so much used to prices that didn’t rise at all or even fell. Worse, for most people, take-home pay has been falling rather distinctly, especially after deduction of social security charges that have been rising even faster than the inflation.
When voters were not happy with the government, a scandal has erupted in the LDP last year. A number of politicians didn’t report the fund raised from parties and kept it in their political organization’s bank accounts. While this is not illegal, distrust for politicians grew among the public that has been always suspicious of politicians’ handling of money, especially at a time when people have been facing difficulties. So a ‘jealousy factor’ kicked in. It often plays a big role in the Japanese public’s emotions and behavior. These men and women are pocketing the money ‘illegally’ while we are suffering amid rising prices.
With his approval ratings sinking, former Prime Minister Fumio Kishida chose not to run for another term for LDP presidency and stood down. He was succeeded by Mr. Shigeru Ishiba, a long time outlier within the party. As soon as having entered the office, PM Ishiba called an early election, which was required to be held by October 2025.
While this election was going to be a tough one for the coalition, they were expected to narrowly defend the Lower House majority. As it turned out, they suffered a far worse blow. Nonetheless, voters displayed their anger against the LDP in a controlled fashion, by not totally bringing them down. The LDP still won by far the most seats among a number of parties. The LDP’s 192 seats, out of 465, were well ahead of 148 for the Constitutional Democratic Party of Japan (CDPJ). The coalition won a total of 215 seats. The last time the LDP suffered a serious blow in 2009, the Democratic Party of Japan (DPJ), the predecessor of the CDPJ, won the election in a landslide, ousting the LDP out of power. The DPJ government left memories that many people want to forget: intensifying of deflation in the aftermath of the Global Financial Crisis, worsened bilateral relations with the United States and mishandling of the Fukushima nuclear disaster caused by tsunami, to name a few.
The DPJ turned out to be more left-leaning than the public wanted. Though the party had many center-right members, they were silenced by the left wing of the party. Those left wingers became today’s Constitutional Democrats after the DPJ’s breakup. Though the CDPJ is by far the largest opposition party, there is little chance for a government led by them. A fair part of the opposition is center-right or hard-right and they have no interest in a part of a coalition government led by the CDPJ.
The National Democratic Party (NDP) was formed upon the DPJ’s breakup, by the center-right wing of the party. Some of their policy resonates with that of the LDP more than the CDPJ’s. With quadrupled seats from 7 to 28, the NDP is wooed by both the LDP and the CDPJ. Party leader Yuichiro Tamaki is not willing to join the LDP-led coalition since it makes them look terrible as betrayal to those who voted for them instead of the LDP, and he has little interest in acting with the CDPJ, either. Nonetheless, Mr, Tamaki may choose to act, case by case, together with the LDP in passing bills at the Diet (Parliament). In return for cooperation, the LDP would have to make concessions to the NDP so that their voice is heard.
The House of Representative is going to vote for the next prime minister on November 11. It is almost certain that Shigeru Ishiba collects more votes than anyone, and forms a minority government to continue as prime minister. This minority government could be surprisingly stable for now, with left wing elements in the Diet kept at bay. That said, there is a strong chance that days of Mr. Ishiba at the helm is not going to be too long. There will be a House of Councillors (Upper House) election next summer. If the LDP’s prospects don’t improve in the next six months, he might be ousted as the LDP’s president. Despite near-term stability, long-term political situation has become considerably more fluid than in the last dozen years.
The Tokyo Stock Exchange experienced a sharp rebound once the election was over. Pessimism on the outcome of the election was amply discounted ahead of the vote. It came out better than feared. The voice for fiscal restraint is likely to take a backseat in this political environment, This is going to be a plus for the market in the short run.
About the author: Mr. Suzuki is a retired banker based in Tokyo, Japan.
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