Japan enters an era of political instability

Japan’s ruling coalition lost its majority in its latest general election, throwing the country “into the kind of political instability not seen for decades”, says Adam Withnall in The Independent. Amid deep voter apathy – turnout was just 53.8% – prime minister Shigeru Ishiba’s Liberal Democratic Party (LDP) and its junior coalition partner Komeito ended up with 215 seats in Japan’s Diet, down from 279 and “well short” of the 233 needed to form a government. It is the worst result for the LDP, which has ruled Japan since 1955 with only two short breaks, since 2009.

A chastened Ishiba conceded that the result reflected ongoing public “distrust and anger”, say Tamayo Muto and Sayumi Take in Nikkei Asia. Since last year, the LDP has been “dogged” by a scandal in which senior party members were illegally given money for campaigning out of a secret slush fund. Ishida was elected party leader in September largely because of his promise to hold individuals accountable, and he called a snap election three days later to try to capitalise on his honeymoon period, says Julian Ryall in The South China Morning Post. Then, in the final week of the election campaigning, it was revealed that some of these individuals, who had been forced to stand as independents, were receiving party money anyway.

How will this impact markets in Japan?

Ishida also U-turned on a number of key policies, including creating an Asian version of NATO and supporting same-sex marriage, says Gearoid Reidy in Bloomberg. It’s hard to understand how such an experienced and popular politician could have made so many missteps. Ishiba is now saying that he does “not envisage forming a coalition” in the 30 days before the next Diet must be convened, indicating that he would “try to make deals for individual pieces of legislation” instead, says Richard Lloyd Parry in The Times. This will use up “considerable time, effort and political capital”, notes Ryall, and “paralysis” in the Diet will only erode his support still further. Hardly any investors seemed prepared for this “upset”, says John Authers on Bloomberg. Japan is “usually stable to a fault.

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Instability changes its offer completely.” When the LDP last lost power in 2009, Japan went through three prime ministers from opposition parties in three years. If something similar were to happen now, it would be a “big problem” for Japan, which is trying to “manage the transition away from decades of inflation”. Despite the LDP’s “drubbing”, the structural reforms kicked off by former PM Shinzo Abe in 2012 are likely to continue to pay off, says Una Galani in BreakingViews. Of late, the Nikkei 225 has hit levels not seen for more than 30 years.

While politicians “bungle”, Japanese CEOs are likely to “stay focused on growing high-return businesses, offloading underperforming ones and shrinking the piles of assets on their balance sheets”. Japan’s next government may try to “shore up its popularity by boosting fiscal spending and trying to delay raising interest rates”, but this would be “unlikely to distract” CEOs and their “pushy” shareholders too much. “If there is any hesitation, the yen, which dropped to a three-month low on 28 October, will at least provide stocks with a short-term boost.”

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