- Despite Koike's meteoric rise in Japanese politics, the status quo looks set to prevail at the national level
- Koike has refused to resign as Tokyo governor, and the opposition has now split into two camps
- Yen weakness looking more likely, as opposition to Abe's LDP appears to be in disarray
For a country accustomed to sleepy politics, the upcoming national elections have taken a surprising series of twists and turns. Last weekend, a Kyodo News survey showed that 14.8% of respondents backed the Party of Hope while only 24.1% of respondents supported Abe’s LDP. This puts the new party within striking distance of the LDP. Meanwhile, more Japanese now disapprove of Abe’s cabinet (46.2%) relative to those who approve of it (40.6%). Given the Party of Hope’s strong initial momentum, many observers suggested that Abe’s decision to call a snap election may have backfired.
Koike refuses to run for Lower House seat, with the opposition now split
While there were rumors that Koike would ultimately resign as the governor of Tokyo in order to run for national politics, she surprised the media today by announcing that such a scenario is “100 percent impossible”. Given her decision to sit out the national elections, there is now confusion as to who voters will be backing when voting for the Party of Hope. After today’s news, hopes for a transformation of Japanese national politics is fading.
Beyond Koike’s refusal to leave her current position, there is also the issue of fielding enough candidates. In Japan, the 465-seat Lower House ultimately votes on the prime minister. Thus in order to form a government, a party must win at least 233 seats (or form a coalition with another party) in order to elect the prime minister. As the Party of Hope has yet to even sign up 233 candidates, there is a limited possibility of the new party forming a majority in the Lower House.
Lastly, Koike also surprised her followers by saying she would “exclude” candidates who do not agree with her party’s policies. She has thus denied more left-wing members of the Democratic Party from joining her movement. In response, left-wing members of the Democratic Party have since formed the Constitutional Democratic Party of Japan. By splitting the anti-LDP opposition, Koike may have inadvertently helped Abe in his quest to maintain a majority.
Impact on the yen
While we previously wrote that the yen may have reasons to rally (given the yen’s safe haven status, the yen rallies when risks increase and fall when risks decrease), today this perspective is out of date. Despite Abe’s low popularity and the recent strength of the Party of Hope in the polls, the LDP is likely to lead the next government on October 22. Whether or not the LDP can maintain its majority is less clear (which may cause Abe to resign), but there is little chance of the opposition forming a majority in the Diet. Thus the yen should continue to fall in the longer term, in line with our positive outlook for USD/JPY.