- Yuriko Koike is creating waves in Japanese politics, with the potential to derail the LDP in upcoming elections
- Her party decisively won the Tokyo regional elections in 2017, a bellwether for national elections
- With or without political uncertainty, the yen forecast calls for a correction for the remainder of the year
The story of Yuriko Koike’s meteoric rise in Japanese politics is one of the country’s best underdog success stories. For a society known for its emphasis on harmony and conservatism, Koike is unique for her international exposure at a young age and outspoken courage. After abruptly quitting Abe’s cabinet ten years ago where she served as defense minister, Koike languished for many years. She unsuccessfully ran for the presidency of the Liberal Democratic Party in 2008, and grew dissatisfied with the trajectory of her career. After running for the Tokyo elections in 2016, a decision she described as “jumping off a cliff”, she won with 2.9m of the total votes. Her regional party, Tomin First no Kai (“Tokoites First”), ultimately went on to win a sweeping victory in the Tokyo Metropolitan Assembly elections in July 2017, crushing the incumbent Liberal Democratic Party.
Her ability to fight, and win, against Japan’s powerful vested interest has enthralled voters in Tokyo. Now she is seeking to repeat her success at the national elections, having formed a new political party: Kibo no To (“Party of Hope”). Forex investors are wondering - will this political underdog story have an impact on the yen?
Political analysis: will conservative Japan change course?
While the last few years have seen election outcomes that have regularly surprised pollsters, Japanese politics tends to lack drama - which is typically a good thing for the yen exchange rate forecast. The current main opposition party, the Democratic Party of Japan, has been mired in controversies for many years, giving the Liberal Democratic Party a clear path to victory in national elections.
Abe dissolved the Lower House of the Diet following his recent rise in popularity, with the expectation to consolidate power. The LDP currently rules the country in a coalition government with one other party. Yet, the announcement of Koike-san’s entrance onto the national stage may upset Abe’s plans - and the USD JPY forecast.
LDP vs. Party of Hope
Abe is running on a platform of “more Abe-nomics”, with his Party calling for a new $18b stimulus package, a sales tax increase to 10%, and a continuing budget deficit. While Japan has operated a government budget deficit for decades, the country has little to show for it. Long-term economic growth remains low, and the government budget remains far from break-even. According to Nikkei Asian Review, polls suggest that 44% of voters will vote LDP, with only 8% planning on voting for other parties.
Unlike the LDP, Party of Hope is running on a platform of freezing the sales tax hike, ending nuclear power and promoting more diversity in society. While the party describes itself as “conservative”, Koike-san is distancing herself and her party from the nationalist faction of the LDP. With regards to economic policies, the Party of Hope has called for a more “efficient use of tax revenues” and operating with a much higher degree of transparency. The Democratic Party of Japan has recently allowed its members to join the Party of Hope.
Political uncertainty and JPY
Without politics in the picture, owning the yen for the rest of 2017 seems difficult to justify. The Bank of Japan remains militantly dovish, while another fiscal stimulus is likely to worsen Japan’s finances. In terms of the USD JPY forecast, the US dollar appears to have turned a corner, with rising interest rate expectations and optimism for tax reforms.
While recent polling results makes it easy to ignore opposition to the LDP, newer political parties have made surprising gains in recent times and should not be summarily dismissed. Examples include Macron's nascent party winning power in France and the AfD's surprising strength in German elections last weekend.
With the added political uncertainty of Japanese elections scheduled for October 22, the yen may have reasons to rally. As the currency is a safe haven, the yen rallies when risks increase and fall when risks decrease. If the Party of Hope manages to stop Abe from forming another government, the yen forecast may turn bullish with these current political uncertainties.
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