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Anthony Rowley

Are politicians dispensable, and can elite bureaucrats run a country more efficiently? The question has become one of more than academic importance in Japan, where the political situation has degenerated into chaos as potential leaders and their parties vie for power.
This is a question that has considerable economic and financial as well as political significance. Japan is a key trade, investment and security partner to other leading nations in and beyond Asia and its financial markets are internationally important.
The questions troubling some in the outside world include whether Japan is turning more to the right with the surprise election of arch-conservative Sanae Takaichi to the presidency of the ruling Liberal Democratic Party (LDP) and thus to the position of presumptive prime minister, as well as what this implies for the country’s relations with China and Southeast Asia.
Japanese prime ministers have come and gone with quite alarming regularity in recent years, and yet the country’s polity has remained remarkably stable. The LDP has been the chief agent of political stability, but now the party’s dominance is being seriously challenged with the prospect of a rival coalition taking power.
The LDP has not been able to form a government just twice since its formation in 1955. The first was from 1993 to 1996 – when it spent a year in opposition before joining a coalition government under Socialist prime Minister Tomiichi Murayama – and the second from 2009 to 2012 after the Democratic Party of Japan swept the LDP from power in the 2009 general election. Komeito, a smaller party, helped the LDP form a government after the latter reclaimed power in 2012, but Komeito has now left that coalition, sparking a new scramble for power.
Given that Japan is the world’s fourth-largest economy, one of Asia’s leading trading partners and the biggest provider of aid to Southeast Asia, outside concerns centre upon whether an apparent populist shift in Japan could come at the cost of the country’s regional and global economic presence. Such concerns are compounded by the fact that Japan is in political turmoil at a time when the United States is withdrawing from international commitments and obligations in everything from trade and investment to security.


Some might suggest that this turbulence – which could bring about a change of government, not simply the prime minister – does not matter as much in a country with a strong bureaucracy such as Japan’s. However, the perilous state of the country’s political establishment carries clear risks for the economy and for markets.
The outcome of an election to choose a prime minister will affect fiscal and monetary policy and, by extension, the yen, the Japanese government bond market, the Tokyo stock market and the pace of opening up Japan’s asset management industry. It could also influence international perceptions of Japan as a reliable trade, investment and aid partner given the revolving door of Japan’s political leadership.
Outgoing prime minister Shigeru Ishiba has been in office for just one year. While his immediate predecessor Fumio Kishida survived three years, before him Yoshihide Suga was also a one-year premier after Suga’s own predecessor Shinzo Abe was assassinated in 2022.

Poised to become Japan’s first female prime minister, Takaichi could find herself ousted by a rival even before taking office. That rival is Yuichiro Tamaki, the head of the Democratic Party for the People, who has declared himself willing to serve as prime minister. Other possibilities circulating and adding to confusion over Japan’s future policy direction include Ishiba remaining in office as prime minister until unity within the LDP is restored and Takaichi stepping aside to allow the party to elect a new leader.
Some observers, including Naomi Fink, the chief global analyst at Amova Asset Management in Tokyo, believe that whatever the outcome of the prime ministerial election, Japan has strong enough government and non-government institutions to enable it to successfully counter any political instability and policy interference.
However, many other political and economic analysts are concerned that, should Takaichi become prime minister, her forceful personality and right-leaning politics could lead to her taking a more populist approach and pushing for further accommodative fiscal policy at a time when the Japanese government’s books are already creaking under large amounts of debt.


That could result in financial markets rebelling against Japanese government bonds in a similar manner to the way they reacted to the fiscal expansion proposals of former British prime minister Liz Truss, forcing her to resign after just six weeks in office. That would add to perceptions of political and policy instability in Japan.
Likewise, markets fear that a Takaichi administration could pressure the Bank of Japan into delaying moves to raise interest rates at a time when inflation in Japan has been rising at a more rapid rate than real wages, creating popular discontent. Suppressing interest rates could also further weaken the yen, adding to inflationary pressures.
As economist and author Richard Katz suggested at a recent Deep Dive economic seminar at the Foreign Correspondents’ Club of Japan in Tokyo, Japan has major problems in its long-term growth strategy and because of poor demand caused by low real wages; none of the parties are offering a solution to that.


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Japan

Japan’s political turmoil will weigh heavily on its economy, and beyond

Newly elected leader of Japan’s Liberal Democratic Party (LDP) Sanae Takaichi, right, celebrates with Prime Minister Shigeru Ishiba after winning the LDP leadership election in Tokyo on October 4. Photo: AFP

Liberal Democratic Party President Sanae Takaichi, right, holds talks with Yuichiro Tamaki, leader of the opposition Democratic Party for the People, in Tokyo on October 15. Photo: Kyoto

As Japan’s ruling party falters, a non-LDP prime minister becomes a real possibility

Japanese opposition leaders (from left) Yuichiro Tamaki of the Democratic Party for the People; Yoshihiko Noda of the Constitutional Democratic Party; and Hirofumi Yoshimura of the Japan Innovation Party meet on Wednesday to discuss banding together. Photo: Reuters

Sanae Takaichi, president of the LDP, speaks at the party’s headquarters on Friday following Komeito’s decision to exit the ruling coalition. Photo: Kyodo

Tetsuo Saito, leader of the Komeito party, pictured at the Diet in Tokyo on Friday. Photo: Jiji Press/EPA

Democratic Party for the People chief Yuichiro Tamaki talks to the media after a meeting of opposition parties in Tokyo on Wednesday. Photo: Reuters

Are lurid stories in Japan of crimes in Europe tilting more voters to the right?

Supporters of Japan’s Sanseito party leader react during the party’s rally in Tokyo on July 21. Photo: Reuters

Commuters reading on their mobile phones and newspapers on a train in Tokyo. Photo: AFP

Nigel Farage, Reform UK’s party leader, attends the launch at Oxford Airport in August of the party’s plan to deport asylum seekers if they get into government. A story on an alleged plan to kill Farange by an Afghan national has drawn attention in Japan. Photo: EPA

Is Japan becoming anti-immigrant? Far-right parties gain momentum in election lead-up

Voters listen to Sohei Kamiya, leader of the opposition Sanseito party in front of JR Shimbashi Station in Tokyo on July 3. Photo: Kyodo

Demonstrators protest against racism and nationalist party Sanseito in Shinjuku, Tokyo ahead of the upper house election on Sunday. Photo: AP

Japanese Prime Minister Shigeru Ishiba’s Liberal Democratic Party has unveiled new proposals targeting foreign nationals in Japan. Photo: Kiyoshi Ota/Pool via Reuters

Sanseito’s party leader Sohei Kamiya speaks in Tokyo on July 3 ahead of the upper house elections. Photo: EPA

Opinion

Asia Opinion

News

Asia

East Asia

More than just who heads the government, the fate of Japan’s leadership race has implications for markets, regional economies and geopolitics


More than just who heads the government, the fate of Japan’s leadership race has implications for markets, regional economies and geopolitics.


Sanae Takaichi

Bank of Japan

Liberal Democratic Party (Japan)

Asia elections

Shinzo Abe

Yoshihide Suga

Fumio Kishida

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Macroscope

Japan’s political turmoil will weigh heavily on its economy, and beyond

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}More than just who heads the government, the fate of Japan’s leadership race has implications for markets, regional economies and geopolitics

More than just who heads the government, the fate of Japan’s leadership race has implications for markets, regional economies and geopolitics