Japan: Politics erupting - BBH

Japanese politics have erupted on the stage as the low-level but persistent allegations of wrongdoing in the Abe Administration came to a head in a stunning defeat for the Liberal Democrats by a renegade from the party, notes the research team at BBH.  

Key Quotes

“A cabinet reshuffle and the tough response to the threats posed by North Korea saw Abe’s support increase.  Seeking to strike while the iron is hot, Abe called a snap election.  The main opposition party, the Democrat Party of Japan, is folding itself into the Party of Hope, led by the Koike, the Governor of Tokyo.  This may be a more formidable challenge to the LDP.”  

“There seems to be little real chance that the Party of Hope will dethrone the LDP in the October 22 election.  They are simply not running a sufficient number of candidates in what will be a 465-seat chamber (down from 475 seats currently).  However, in the Japanese politics that might not be necessary.  The risk for the LDP of an embarrassing loss of a large number of seats, or a particularly poor showing in Tokyo districts should not be under-estimated.  The Party of Hope has seized upon two popular issues—canceling the sales tax increase slated for 2019 and abolishing nuclear power.”

“That said, there does to appear to be an economic alternative to Abenomics, which is the traditional LDP easy monetary and fiscal policy.  Abe previously justified the sales tax increase in terms of reducing Japan’s debt-to-GDP ratio of well over 200%.  However, now he suggests some of the proceeds can be used to fund pre-school and higher education.  He has proposed spending another JPY2 trillion (~$18 bln) on the initiative which will be funded by the sales tax increase.”

“BOJ Governor Kuroda’s term ends next year.  A one-term governor is a tradition.  Strong support for the LDP would encourage Abe to break from tradition, while an embarrassingly large loss of seats could force Abe to hew to tradition.  Kuroda’s activist approach now dominates the Board.  The dissent from the recent meeting was in the direction of doing more, not less.”