Japanese Politics Updates – June 9, 2024

Welcome to the 174^th episode of Japanese Politics One-on-One, delivered to you by Langley Esquire and Japan Expert Insights.

We are now in the second week of this month. As you know, each week brings us closer to the end of the current Diet session. As expected, this past week was chockfull of activity in the Japanese political world so let’s dive deeper into this and what-else transpired over the past seven days.

Prime Minister is Unlikely to Call for Snap Election

As it stands, Prime Minister Kishida is terribly-unlikely to dissolve the Lower House and call a snap-election. This is due to (among other things) internal conflict within the Liberal Democratic Party (LDP). Without the usual factions to distribute Cabinet positions post-election, an outcome is anybody’s guess, given that the Prime Minister wants to remain in office. Current calculations suggest that if the LDP held an election today, they would lose around 60 seats. They can afford to lose maybe 40-50 seats and still maintain a majority in the Lower House. However, the problem is that the LDP alone cannot pass legislation in the Upper House. There they lack 50% of the seats, making a coalition partner essential.

Regarding reform legislation, Komeito has demanded (somewhat overplaying their hand) transparency, while the opposition argues against calculations that avoid reporting to tax authorities. The legislation passed the Lower House last Thursday and now moves to the Upper House.

The fight isn’t over. LDP & Ishin-no-kai have allied, with Ishin gaining concessions from the LDP. It’s unclear what Ishin will receive. It likely involves concessions related to the Osaka Expo or, perhaps, entrée into the LDP/Komeito alliance-fold. For the Expo, remember that the national government, Osaka government, and local businesses each cover one-third of Expo costs. And it is no secret that Osaka (read “Ishin”) is facing difficulties with less than a year before the six-month Expo starts.

A successful Expo benefits both Osaka & Ishin, who dominate the region. Ishin is concerned about the Constitutional Democratic Party (CDP)’s recent success, stifling their aim to become the largest opposition party. The CDP’s recent wins include the Minato Ward mayoral race and the Shizuoka governor’s race, with five consecutive victories. This string of losses forces the Prime Minister to reconsider the benefits available from a snap-election (diminishing daily). Komeito, on the other hand, is not liking that the LDP is looking at someone prettier to dance with in a time-of-need. Lots going on.

Policy Implications

This is actually something to watch. It is possible that the bartering that is going on to improve Mr. Kishida’s standing comes at a cost of including Ishin-no-kai into the alliance-government. This means a Cabinet seat for Ishin and would shake things up… and it is probably worth holding your nose for a long time just to achieve that! It goes against what Ishin has promoted for years (“we want to be the biggest Opposition Party”).

The largest implication, however, is that deserving legislation has been kicked to the curb. This is to satisfy the PM’s need to pass legislation that was not even an issue when this Diet session first started. Compared to the many, many Bills (generally, around 80 or so, only a portion of which will pass through the 160 day process) that have been in-process for 3 or more years just to reach the point of parliamentary deliberations. So, people will remember this, and make their feelings known one-way-or-the-other.

So, What Options for Prime Minister?

It certainly appears unwise for Prime Minister Kishida to call for a snap-election at this time. So the most likely scenario is a Cabinet reshuffle. At this point, this is pretty much the only option left for the Prime Minister considering his ongoing disputes between him, Deputy Prime Minister Taro Aso, and LDP Secretary General Toshimitsu Motegi (it has gotten nastier). Prime Minister Kishida’s recent gambit to go alone against LDP’s established positions and to unilaterally negotiate with Ishin to secure the reform legislation for political funding also upset younger LDP Members who rely on this special-LDP-allotment of political funding as their lifeblood for their positions. As a result, the Prime Minister is becoming increasingly isolated within his own party. Both Aso & Motegi are far-from-favoring his leadership.

The LDP appears ready for change but must manage this transition carefully to maintain public support. Ultimately, the decision rests with Prime Minister Kishida. Substantial developments are now unlikely until the Party Presidential Election at the end of September. Motegi, as Secretary General, is a likely candidate to challenge Prime Minister Kishida. He will have significant influence over the election process. The Prime Minister however has final say, promising a potential showdown among these two giants.

Policy Implications

There is lots of smoke and trampling of feet. ‘Change’ is not just ‘in the air’, we are in the thick of it now. No one, not a single individual since the inception of the LDP, has changed the LDP so significantly, so drastically, so rapidly, as has Prime Minister Kishida. And even at this point, we cannot quite see what it all conspires to mean in the real-world… We are still calculating based on power-factions. But the ground has shifted. Policywise, depending on who is the victor, we could see ourselves still with Mr. Kishida after the Presidential Elections. This is because beating a devoted incumbent is difficult even if there is a poor Approval Rating, even if there is a scandal, or a revolt. Policy will always take a back-seat to self-preservation. And THAT goes for the entire universe called Nagata-cho (which operates by different rules). 

The Battle for Tokyo Governorship

The Diet session will end on the 23^rd (less than 2 weeks away!). The Diet Session might be extended (a few days, maybe 10?). However, the Prime Minister just indicated that he has no intention to do so. If extended, it will likely coincide with the Tokyo Governor Election, which culminates on July 7th. Incumbent Governor Yuriko Koike has not yet announced her candidacy. She has delayed such announcements in the past, sometimes until just six days before the campaign-deadline. She is definitely going to run.

Throughout Tokyo, you can already see large boards with 32 blank spots for candidate posters. Currently, there are about 27 candidates, with the likelihood of more joining. Renho is poised to give Gov. Koike a strong challenge, backed by the Constitutional Democratic Party. She is a popular and strong candidate with a good chance of becoming Governor. However, Governor Koike does have the advantage of successfully serving her position as Tokyo governor for two election cycles (8 years, no term-limit). So it will be interesting to see how this battle between these two unfolds. 

Policy Implications

This battle will ultimately be CDP vs Tokyo Firsts. Should the CDP win, that would be earth-shattering and propel this opposition-party into the big league: they will give it all they got and toss in the kitchen-sink to boot. Candidate Renho relinquishing her solid (4 term!) Upper House position just to run is gutsy and a Big Play by CDP. As for Koike, getting into bed with the LDP is tempting because it is a fight for votes, but recent LDP fraternization has proven to be a kiss-of-death over the last 5 elections! So expect lots of coalition-building, which means compromising on important-to-Koike policy-positions… for example Gaien Redevelopment. This is a big election with dozens-and-dozens of candidates who could be cajoled to (endorse) one-side or the-other in mid-election. Watch this carefully: Tokyo under Renho (CDP) will be markedly different from a 3^rdTerm Koike Tokyo.

Emperor Naruhito UK State Visit

Emperor Naruhito and Empress Masako are set to make a one-week official State Visit to England on June 22^nd. This will be the first Japanese State Visit in over two decades. This visit carries considerable weight, especially in the context of ongoing discussions about Imperial Succession, given that the Emperor and Empress only have a daughter. The trip is expected to highlight the strong ties between Japan and England, while also drawing attention to the broader issues facing the Japanese imperial family in terms of succession. Expect lots of media coverage.

Policy Implications

There will be plenty of fanfare and publicity, a lovefest between the countries, while the royal couple are in London for a week. This is a big diplomatic move and much can be expected out of it. It has been a long time since the last State Visit even though PMs Abe and Kishida both have visited on G-7 business, or on-the-way-to-Ukraine, etc.

The Diet Approves Next-Generation Fighters

The Diet approved an additional international treaty related to the next-generation fighter jets. This marks a significant step in Japan’s defense strategy: the one this week was for export-control. This trilateral agreement passed the Upper House (thus becoming Law) aims to replace the current state-of-art F-35s now deployed by the United States, Japan and select allies. The agreement raises important questions about Article 9 of the Japanese Constitution, considering the offensive nature of the weapons in this treaty despite the constitution strictly prohibiting Japan from possessing or exporting offensive weaponry.

Prime Minister Kishida is keen to address these Constitutional issues. Yet, he is not acknowledging Japan has already exceeded the restrictions set by the Constitution (and that confrontation will be in 2036 but given the pace-of-change, likely much earlier). This move to address Constitutional Revision is gaining momentum. It is likely to spark intense national debate and scrutiny, although it’s unlikely that the current Prime Minister will be able to do so during this term.

Policy Implications

If you are following this series, you will be aware of the vast developments within the sphere of national defense, military-cooperation and SOFA-like agreements with Britain, Australia and others-in-the-making, gradual spiking of weaponry production, R&D, joint-development, technology-transfer and the like. Though only lightly reported elsewhere, it is prevalent and unmistakable. Japan is shifting away from the peace-constitution and the Swissesque posture of neutrality. This his has profound implications across the board. Continue to keep an eye on this.

Toyota Backs Out of Olympic Sponsorship

The Paris Olympic Games start July 26th, almost a month from now. In a surprising turn, Toyota announced its intention to cease Priority Sponsorship. The giant automaker’s ongoing $835 million, four-Olympic sponsorship contract with the IOC is going to lapse. This lapse is driven by concerns over the International Olympic Committee’s (IOC) financial management, particularly regarding the Tokyo Olympics. Toyota’s was the largest contribution in history. This decision comes at a time when the Osaka Expo faces its own set of challenges. Several countries are yet to submit architectural plans for their pavilions, jeopardizing the Expo’s ambitious goal of attracting 26 million visitors. It seems there is a pattern beginning to emerge here for these events.

The Olympics Cost

Reflecting on the Tokyo Olympics, the event cost a staggering $13 billion. Half of that amount came from public funds. The IOC contributed $1.8 billion, while local sponsorships, orchestrated by Dentsu, brought in $3.3 billion. As you may remember, Dentsu and former Prime Minister Mori sparked controversy at the time for the handling of Olympic sponsorship money, further complicating the legacy of the Tokyo Games.

Despite Toyota’s exit, the current roster of top Olympic sponsors remains robust. It includes prominent names like Airbnb, Alibaba, Bridgestone, Coca-Cola, Intel, Omega, Panasonic, Procter & Gamble, Samsung, and Visa. However, the absence of Toyota will undoubtedly mark a significant shift in the landscape of Olympic sponsorships going forward.

Policy Implications

It is still curious (years after the fact!) that a full examination and investigation of the Tokyo Olympics fiasco has not identified the entire scheme and fingered the participants. The blowback from NOT going through this exercise is precisely what underlies Toyota’s decision: sponsors will not tolerate it and vote with their feet. This also has serious reputational spillage on the LDP, and the kickback-scandal is just more fuel on the fire.

The calls for Prime Minister Kishida to resign from the backwaters of Japan and in the local chapters of the LDP begin to gather momentum, even though the two are not directly related (some would say otherwise, that they are DIRECTLY related: Former PM Mori created the kickback scheme 20 years ago, also was Tokyo Olympic 2020 Chairman, etc.). These threads run deep. Without a good housecleaning purge, this trend could build to a crescendo within the IOC in the same way as it seems to be building within the LDP.

Yen Stabilizes Following BoJ Intervention

Currently, the yen stands at ~$/¥156.73, maintaining stability following a significant intervention by the Bank of Japan 3 weeks ago. Last week, we reported that, to support the yen, the Bank of Japan spent a tremendous ¥9.8 trillion ($62.7 billion), surpassing the scale of their intervention two years ago. This move successfully improved the yen’s value from ~$/¥160.17, the highest in 35 years, to ~$/¥153 against the dollar.

Continued Commitment

The Japanese government remains steadfast in its commitment to projecting the yen’s strength and stability in international markets, demonstrating its resolve to maintain economic stability and confidence. But this is a pretty heavy cost you don’t want to get into a habit of doing very often. The funds for this propping-up came from Japan’s tremendous foreign-reserve account which now stand at a whopping ¥1.14t… which means: two weeks ago, Japan’s foreign-currency reserves stood at ¥1.77t. 

Policy Implications

BOJ and the Finance Ministry are putting a big show of force on this support-of-the-currency. Though not actually ‘bragging’, they have let it out that the foreign-currency reserves are in enough volume to do this again and again. Maybe that is true. This national resource has taken 40 years to accumulate as a component of Japan’s trade policy. Depleting this national resource it is (many believe) forestalling the inevitable. At the same time, BRICS, the dollar as the world currency, fiat-currency reliance, crypto developments, etc., are coming up fast. Japan’s zero-interest rate cannot compete against the US’s 5.25~5.5%: money just naturally flows in the ‘+’ direction.

The yen will continue to weaken (until it finds its natural-level). The cost of imported products & inputs-to-production will remain high. Tourists from around the world will continue to find Japan a wonderfully cheap destination. It is precisely for this reason that PM Kishida is so very keen on chip-production in Kumamoto & Hokkaido. He is also eager to pursue AI as a ‘new industry’, create free-trade zones for foreign money managers, launch defense capabilities as a nationwide industry, etc. The pace and depth of change is truly remarkable. In 5 years, you will look back on 2024 and kick yourself for not being better-prepared, better aligned. This is coming fast.