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Japan’s Liberal Democratic Party (LDP), which had ruled Japan almost continuously since 1955, just took a blow at the snap elections on October 27. The party that has always enjoyed a safe and steady place in Japanese politics lost its single-party majority in the powerful lower house – for the first time since 2009.
“In our view, the results of Japan’s lower house election on October 27 mainly reflect criticism over a slush-fund scandal involving political donations to the ruling Liberal Democratic Party’s factions, rather than disagreements over policy. The LDP had tried to seek an electoral mandate by quickly dissolving the chamber after choosing new Prime Minister Shigeru Ishiba. But the tactic backfired,“ said Shigeto Nagai, Head of Japan Economics at Oxford Economics.
Together with its coalition partner Komeito, the LDP only won 215 seats out of the 233 seats needed to maintain a majority. The opposition parties, the Constitutional Democratic Party (CDP) and the Democratic Party for the People made big gains: up from 98 to 148 and up from 7 to 28, respectively.
Despite this setback, Prime Minister Shigeru Ishiba has signalled his intention to remain in office, emphasising stability in leadership amid the political uncertainty. “National politics cannot stagnate for even one moment,” the Prime Minister said at a news conference.
Most likely, Ishiba will continue with a minority government as he told reports he was not considering a broader coalition “at this point.”
Since the LDP returned to power in 2012, it has maintained its position as the governing party. However, a series of recent scandals led to the election of a new prime minister in September.
Ishiba then called the snap election immediately after taking office on October 1. He followed former Prime Minister Fumio Kishida, who resigned due to a historic-low approval rating over a funding scandal.
What does the political uncertainty mean for markets?
Analysts opine that the LDP’s mounting unpopularity could hurt both the equity market and the yen in the near term.
Following the snap election’s outcome, the yen hit a three-month low, falling more than one per cent against the US dollar.
Stocks surged higher, the Nikkei Stock Average closed 1.8% higher from Friday, and the Tokyo Stock Price Index ended 1.5% higher.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noted that the election outcome is generally negative for the stock markets because of the increased political uncertainty. “However, the rally is partly on the fact that this big risk event is now behind us, so there’s a sense of relief. That and the weaker yen,” he added.
