Political Uncertainty in Japan After Election Shake-up

Japan’s political future remains uncertain as voters rebuked Prime Minister Shigeru Ishiba’s scandal-plagued coalition, leaving no party with a clear mandate to govern the world’s fourth-largest economy.

This uncertainty has driven the yen to a three-month low, with analysts predicting potential days—or even weeks—of political negotiation to form a government. A change in leadership is also on the horizon, as Japan grapples with economic challenges and regional tensions fueled by China’s assertiveness and North Korea’s nuclear capabilities, while the U.S. approaches its own unpredictable election next week.

In Sunday’s election, Ishiba’s Liberal Democratic Party (LDP) and its coalition partner, Komeito, won only 215 seats in the lower house of parliament, down from 279 seats. This drop came as voters expressed dissatisfaction with the government over a campaign funding scandal and rising living costs. Two cabinet members, along with Komeito’s leader Keiichi Ishii, lost their seats.

The main opposition party, the Constitutional Democratic Party of Japan (CDPJ), emerged as the biggest winner, gaining 148 seats, up from 98. However, it too fell short of the 233-seat majority required to govern.

Under Japan’s constitution, the parties now have 30 days to form a governing coalition. Ishiba, who took office less than a month ago, faces mounting pressure and uncertain prospects as LDP leader. Smaller parties made gains in the election, and their role in negotiations will be critical.

“Whether or not Prime Minister Shigeru Ishiba steps down as LDP leader today, it’s unlikely he will lead the new government,” said Tobias Harris, founder of political risk advisory firm Japan Foresight, “though he might remain as a caretaker.”

Ishiba is scheduled to hold a press conference at 2 p.m. (0500 GMT). The LDP had planned to convene parliament on November 7 to confirm the prime minister, according to Japanese media reports.

CDPJ leader Yoshihiko Noda has expressed intentions to collaborate with other parties to unseat the incumbents, though analysts consider this a less probable outcome.

LDP’s Worst Election Performance Since 2009

This election marks the LDP’s worst result since 2009, when it briefly lost power to the CDPJ’s predecessor. Ishiba, who narrowly won the party leadership last month, had called for an early election in an attempt to secure public support. Initial ratings hinted at positive public sentiment, but frustrations over a recent funding scandal involving unreported donations to LDP lawmakers diminished Ishiba’s appeal.

The LDP refrained from endorsing several candidates embroiled in the scandal. However, days before the election, a newspaper linked to the Japan Communist Party reported that the LDP had funded campaign efforts for non-endorsed candidates. Despite Ishiba’s assertion that these funds could not be used by the candidates, the news spread widely, with Japan’s Asahi newspaper criticizing the LDP’s “lack of regard for public perception.”

Role of Smaller Parties

Support from smaller parties like the Democratic Party for the People (DPP) and the Japan Innovation Party, with 28 and 38 seats respectively, could prove crucial for the LDP. DPP leader Yuichiro Tamaki has not ruled out cooperating with the LDP-led coalition, while Innovation Party head Nobuyuki Baba has rejected the idea.

Both parties advocate policies that may challenge the LDP and the Bank of Japan. The DPP supports halving Japan’s 10% sales tax until real wages rise, a stance not endorsed by the LDP. Both parties have also criticized the BOJ’s interest rate hikes, aiming to move away from decades of monetary stimulus.

“What they [LDP] can offer these parties will be critical. Ideally, they’d bring them into the coalition government, but that may be a stretch,” commented Rintaro Nishimura, an associate at consultancy The Asia Group.

Call for Stability and Record Female Representation

Masakazu Tokura, head of Japan’s largest business lobby Keidanren, expressed hope for a stable LDP-Komeito-led government to address pressing issues like energy security and wage growth.

On a positive note, a record 73 women were elected to Japan’s predominantly male parliament, surpassing the previous high of 54 set in 2009.