Lawmakers from Japan’s ruling party will vote on Monday on whether to hold a special election that could topple Prime Minister Shigeru Ishiba — a move that would have major implications for the world’s fourth-largest economy.
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Concerns over political uncertainty have triggered selloffs in the yen and Japanese government bonds this week, with the 30-year bond yield hitting a record high last Wednesday.
While the political paralysis surrounding such a vote could further strain an economy already hurt by U.S. tariffs, markets are more focused on the possibility of replacing Ishiba with someone favoring looser fiscal and monetary policy, such as Sanae Takaichi, who has criticized the Bank of Japan’s rate hikes.
Ishiba has rejected calls from within his Liberal Democratic Party (LDP) to step down and take responsibility for the party’s loss in last July’s House of Councillors election.
Nevertheless, staying in power has become increasingly difficult. After losing its majority in both chambers of parliament, his ruling coalition now requires opposition support to pass legislation.
Party Rules
According to party rules, at least half of LDP members must request a leadership election, which could take place this month or in October.
Such a contest would delay parliamentary approval of a supplementary budget aimed at easing the financial strain on households from rising living costs.
Fearing association with the unpopular prime minister, opposition parties have refused to provide support. Even some members of Ishiba’s cabinet are now calling for a new party leader.
On Friday, Ishiba told reporters he plans to prepare an economic support package this fall. When asked if he would resign, he said:
“All I can say is that my government will fulfill its responsibilities to the people.”
The Eurasia Group has put Ishiba’s chances of remaining in office at just 40%.
David Boling, Director of Japan and Asian Trade at Eurasia, said:
“Ishiba’s weak performance as party leader in the lower and upper house elections, along with recent developments — including former Prime Minister Taro Aso’s announcement of support for a special election — have tilted the balance against Ishiba.”
Potential Successors
Although the LDP lacks a parliamentary majority, its leader remains the frontrunner to become the next prime minister, given the opposition’s fragmentation.
Analysts say the choice could affect not only the scale of fiscal stimulus but also the timing of the Bank of Japan’s next interest rate hike.
Among the leading contenders is Shinjiro Koizumi, the 44-year-old agriculture minister, who enjoys broad popularity though his economic views are less clear.
Some analysts see Sanae Takaichi, who represents the LDP’s right wing, as a strong candidate to become Japan’s first female prime minister.
While several other candidates are expected to run, Takaichi stands out for her vocal opposition to Bank of Japan rate hikes and her calls for greater spending to support the fragile economy.
After ending a decade-long massive stimulus program last year, the Bank of Japan raised interest rates to 0.5% in January, believing the country was close to sustainably achieving its 2% inflation target.
Most economists surveyed by Reuters expect the central bank to raise rates again this year, with some betting on an October hike. –Agencies
