The recent legislative election upsets the political balance, revealing growing dissatisfaction with the ruling coalition and leaving the country facing a period of uncertainty.
This is a first since 2009! Japan’s ruling coalition, led by the Liberal Democratic Party (LDP) and Komeito, failed to secure a majority in the lower house of Parliament. The October 27 elections saw the PLD’s number of seats fall from 279 to 215, well below the 233 seats needed to obtain a majority. This reflects widespread public discontent with the government’s handling of recent scandals and economic pressures.
The LDP’s difficulties deepened in 2022 when the assassination of former Prime Minister Abe Shinzô highlighted the close ties between LDP officials and the controversial Unification Church. In 2023, a tax scandal worsened the situation, leading to the indictment of many party members, thus compromising its reputation.
Prime Minister Shigeru Ishiba, newly appointed head of the party, initially raised hopes of reform. However, he quickly disappointed voters by backtracking on his promises and aligning himself with traditional party positions. Ishiba’s call for early elections, intended to consolidate support, backfired as the PLD failed to distance itself from candidates involved in scandals, further eroding the party’s confidence. public opinion.
While temporary subsidies can help address economic challenges, large tax cuts create lasting revenue deficits.
At the same time, the Constitutional Democratic Party (CDP), the main opposition force led by former Prime Minister Yoshihiko Noda, won 148 seats. However, it still does not have a government majority. Although seven smaller opposition parties gained seats, they remain largely divided and lack a unified position, making seamless governance unlikely. Many voters are reluctant to fully support the opposition due to past difficulties.
Election results last week created a disunited parliament, necessitating the formation of a coalition to ensure stability. The PCD is considering forming a government without the PLD and Komeito, but it would need the support of all opposition groups to achieve a majority – a difficult task given significant political differences, particularly over security and of energy. It is therefore more likely that the LDP will retain power by aligning itself with an opposition group that shares a number of commonalities.
To stabilize his administration, Ishiba began negotiations with the People’s Democratic Party (DPP). The talks between the LDP and the DPP, which began on October 31, focus on economic policies and other key issues. A coalition with the DPP and LDP-affiliated independents would increase the ruling group’s number of seats to 249, giving it enough leverage to pass budget proposals and avoid a no-confidence vote.
At the heart of these coalition discussions are the DPP’s economic proposals, which include lifting the gas tax freeze and increasing income tax exemptions to ease the cost of living. These measures also aim to encourage part-time workers to increase their working hours, without having to suffer tax penalties. However, these proposals carry financial risks. Raising tax exemption limits could reduce government revenue by an estimated 7.6 trillion yen, or about 6.5 percent of combined state and domestic tax revenue. While temporary subsidies can help address economic challenges, large tax cuts create lasting revenue deficits. The PLD-Komeito coalition prefers targeted benefits for low-income households and retirees, constituting a more sustainable solution. Achieving consensus on these issues will be crucial to the stability of the coalition.
If coalition negotiations do not result in a budget deal before March 31, Japan could face a “budget hole” from March 1is April if the fiscal 2025 budget is not adopted. Although Japan has always resolved its financial problems quickly, any delay could disrupt public services and provoke public criticism. Another risk is that of a vote without confidence, which the opposition could use to challenge Ishiba’s leadership. If successful, Mr Ishiba could be forced to dissolve the House of Representatives and call new elections, something the ruling coalition is keen to avoid.
The coming months will test whether the LDP can provide the stability the public expects or whether unresolved differences will send Japanese people back to the polls in search of a more lasting solution. Regardless, one of the main pillars of the “Japan bullish” narrative, namely Japan’s reputation for policy continuity, has become increasingly difficult to defend in the wake of these results. In this context, the Bank of Japan must stay on the sidelines, given the challenges that arise both domestically and internationally.
