Japanese Politics Updates – February 23, 2025

Hello fellow Japan Hands, and welcome to your weekly update. This of course is just a synopsis: much is lost in making the verbal briefing crisp for you. The better idea is to tune-in to the live version on Sunday mornings (Tokyo). In particular, the Q&A section produces the most value. But everyone is busy so we take the time to compile these latest developments to keep you abreast of developments. Broadcasting from the deck of the good ship Gryms, Tokyo Bay:

• Week ended surprisingly strong at ¥/$149.22, strengthening from the last few weeks performance of ¥/$151 ~160… This is a welcomed sign;
• The Emperor’s Birthday is today so Japan will enjoy another National Holiday tomorrow: the entire country, a day-off;
• Budget Debate comes to a close this week. The Lower House must pass to the Upper House by 3/2… but Sunday and Monday is a holiday. So realistically, there are only 4 business-days to complete this! Very much down to the wire yet the haggling continues to be intense!

Inflation and Economic Concerns

Inflation in Japan has been rising at a concerning rate. Prices excluding fresh foods increased by 3.2% and overall inflation hitting its highest pace in two decades. Vegetable prices, particularly cabbage, have skyrocketed, and rice prices have risen by 70% compared to last year. This has led to concerns about stockpiling. In reaction, the government has released some stockpiles to manage this crisis. It could get worse.

Japan’s Foreign Policy on Ukraine

Japan’s Foreign Minister Takeshi Iwaya reiterated Japan’s support, Japan’s standard stance on the war throughout the Biden Administration. Things are in flux, however, and even in the G-20 meeting this week in Johannesburg, S. Africa, it seems the tone in D.C. has changed too rapidly to catch-up. Additionally, the three-year anniversary of the Ukraine invasion is tomorrow. Puts Japan and the Foreign Minister is a difficult position.

Budget Debate Urgency

If you followed the news last week, we reported on the move by the CDP to cleve a settlement with the LDP/Komeito. We anticipated a done-deal but the tide turned on Monday. As of today, it looks like Ishin-no-kai has swooped-in to capture the hearts of the LDP with their accommodation of providing at least 13 (if not all of their 38 Lower House) votes to pass the Budget by this Friday. There are a few more days of possible haggling or turncoating, but maybe this is the final deal. The issue of the Abe Faction Accountant testifying remains a very hot potato. Be on the lookout for a Press Conferences and photos of the three leaders with smiles beaming.

Lower House vs Upper House Power

The Lower House in Japan has more influence than the Upper House. It has nearly three times the number of Members, and this gives it a stronger voice in passing legislation, including the national budget. If the Upper House rejects the annual budget, the Lower House can override it. This makes the Lower House the more powerful chamber in terms of budget approval.

Opposition Party Negotiations

Several opposition parties have been pushing for their own various demands, as their own barganing-chip to accommodate the LDP being able to brag about passing the budget. The Ishin-no-kai party is demanding free education, free food for children, and free childcare for families with children under two. Meanwhile, the Democratic Party for the People wants the tax-free salary threshold to be raised. The Constitutional Democratic Party is focusing on the testimony of a key figure in a corruption scandal, which has caused friction between parties and a rash of other economic policies. The LDP is in a real pickle and must decide. Our guess is LDP with Ishin because their demands are far less of a burden on the budget, costing about 10% of what the hit would be under the demands of the DPFP. And as far as the CDP is concerned, the LDP does not want the Accountant to be forced to testify.

International Impact on Japan’s Economy

Japan’s foreign policy, especially regarding Ukraine and its relationship with the United States, is in focus. Tensions surrounding tariffs on steel, aluminum, and other goods, as well as broader issues like the war in Ukraine and Gaza, are affecting Japan’s economy and foreign policy. Japan’s exports surged by 7.2% recently while imports, particularly in communications machinery and computers, surged by 16.7%. This is due to anticipation of riciprocal tariffs coming into effect in March, 25% steel & aluminum tarrifs in April. Tariffs could significantly affect industries related not just to steel and aluminum, but also to pharmaceuticals, autos, computers, etc. This could create further challenges for Japan’s long troubled economy.

Domestic Economic Issues: Inflation

The Bank of Japan has acknowledged that inflation, particularly with the rising cost of vegetables and rice, is a significant issue. In addition, BoJ expects it to remain at around 3% for the rest of the year. This is a damning acknowledgement that will hurt the Ishiba Administration as things (after the budget passage) will quickly gear-up to June/July elections.

Potential Double Election in Japan

A double election, involving both the Upper House election (which is already set by the natural termination of the 6 year term-of-office of half the Upper House in June) and a potential Lower House election triggered by a no-confidence vote or some other political shift. A double election would create a rare opportunity to repeat what the opposition parties achieved just months ago by removing the LDP majority. This explains the particularly thorny issue if the testimony of the Accountant involved in a scandal is allowed to occur.

World Expo’s Significance for Japan

The upcoming World Expo in Osaka, set to begin in two months, is a significant event for Japan. It will attract millions of foreign visitors and is important for political figures like Ishin no kai. There’s even talk of President Trump visiting the Expo. This could be seen as a grand-gesture from Prime Minister Ishiba to encourage Ishin to team-up with the LDP on the budget.

Questions from the Audience Addressed Exclusively During the Briefing

• During the summit meeting in Washington, D.C. last week, Trump-Ishiba agreed to expand Japan’s import of liquefied natural gas (LNG) from the United States. But since 37% of the LNG is resold overseas, expanding imports from the U.S. will not contribute to Japan’s energy security. What are your comments on this?
• Do Japanese companies see Trump as bad for business?
• What impact will the Hyogo Prefecture scandal have on the Ishin Party?
• Regarding the CDP breakthrough you reported last week, did they reach the resolution you talked about through political dispute or through a policy decision made through dialogue?
• Why doesn’t the Constitutional Democratic Party form a coalition with other opposition parties to challenge the LDP, or is the game to work with the LDP to advance their own policies and gain voter support?
• What was the strategy behind the Constitutional Democratic Party’s recent move to submit their own budget for consideration?
• Should the CDP ploy prove successful, how does this affect the other opposition parties?
• What impact will this CDP accommodation with the LDP have on the upcoming Upper House election, and does it enhance the possibility for a double-election in July?
• The Budget must pass through the Lower House by March 2, which are only 4 workdays! Will there be a deal… must there be a deal?
• Akiyo Abe, widow of the late Prime Minister Shinzo Abe, has been increasingly active in diplomacy. She recently met with President Trump and with the President of Taiwan. What do you think… is she preparing to run for office… is there a role for her?