Japanese Politics Updates – August 18, 2024

The synopsis of briefing “Japanese Politics One-on-One” Episode #184, produced and delivered by Langley Esquire and Japan Expert Insights.

Here are the summertime events in Japanese politics that happened just this past week: hot off the Press!

• Japan’s Olympic team returned triumphantly from Paris, having achieved remarkable success;
• Prime Minister Kishida decided not to run for re-election, opting not to participate in a runoff;
• A typhoon hit two days ago (Friday), which effectively shut down Tokyo; however, it turned out to be less severe than expected;
• An earthquake with a magnitude of 7.1 occurred about 10 days ago. While it caused minimal damage, it prompted the Meteorological Agency to issue, for the first time, a Nationwide Advisory, which lasts for 10 days. The agency withdrew the advisory on Thursday as the quakes have subsided.

So, let’s dive deeper and see what else transpired during this dramatic week:

Reflecting on the 79th Anniversary of the End of World War II

This week has been profoundly impactful, with last Thursday (August 15) marking the 79th anniversary of the end of World War II. 

Key Points:

• As for the commemorations: August 6 marked the Hiroshima Memorial, followed by the City of Nagasaki on August 9. Last week, there was some controversy surrounding the Nagasaki ceremony. The Mayor decided not to invite the Israeli Ambassador, leading to a diplomatic stir. All G7 country ambassadors boycotted Nagasaki and instead paid their respects in Tokyo.
• August 15 is a particularly poignant date: On this day in 1945, Emperor Hirohito addressed the Japanese people via radio for the first time, announcing Japan’s decision to cease hostilities. This moment was a turning point in human history. It led to Japan’s post-war peace, the adoption of its pacifist constitution and far, far more.
• Okinawa remains a stark reminder of the war’s brutality: The Battle of Okinawa, lasting 82 days, resulted in the highest number of casualties for both sides. Nearly 95% of all Japanese soldiers involved in that battle lost their lives. The U.S. suffered its highest battle casualties of the entire global war here. 

Today, as we discuss Japanese politics and the broader impacts of these events, I am deeply grateful. Understanding these historical underpinnings is crucial as they shape the economy, society, and politics. This reflection is about history and also about recognizing the progress we’ve made and the importance of continuing to strive for peace.

Post-Obon Week Overview: Yen Fluctuates & Economic Uptick

Key Points:

• Yen continues to fluctuate: After a short, four-day trading week due to Obon  and the National Holiday on Monday (Mountain Day), the yen closed at $/¥147 on Friday.  In separate news, economic reports for last month are in: July showed a slight uptick! Good news but insufficient to sway the Prime Minister from his decision on Wednesday not to seek a second term.
• Things will heat up soon: With Obon (one of the most significant of Japanese holidays) now over, the country will return to its usual pace of work on Monday. September through November is traditionally a dynamic time for the business community. It culminates in December with numerous end-of-year parties, or bonenkai, and corporate events. And the latter part of December and the early days of January are often considered a lull before activity picks up again.
• Surveying the landscape: In mid to late January, the Japanese Diet will reconvene for its constitutionally mandated ordinary Diet session of 150 days. As we move toward this period, the political landscape remains turbulent. There are various uncertainties and potential challenges on the immediate horizon and we can already see the storm-clouds forming.

Olympic Team Returns Victorious from Paris

Key Points:

• Olympic Success: This week, Japan’s Olympic team returned triumphantly from Paris, having achieved remarkable success. Japan secured 20 gold medals and a total of 45 medals overall. It came in 3rd behind the US and China. 
• Historical Achievement: Japan’s medal count is its highest (overseas) since the 1968 Games in Mexico City. The 403 athletes participated across 43 events with particular exceptional performance in disciplines such as breakdancing, fencing, judo, and gymnastics. But there were numerous notables. Congratulations Japan!
• Homecoming: The team returned home to a hero’s welcome on Tuesday and Wednesday. This happened amid the news that Prime Minister Kishida had announced he would not seek re-election. This moment of national pride provided a striking contrast to the political developments unfolding here. 

Typhoon and Earthquake Impact: Recent Natural Disasters in Japan

Key Points:

• Japan braced for impact of a predictably severe typhoon: On Friday, August 16, a Force Five typhoon was anticipated to strike with considerable force, reminiscent of a devastating typhoon that hit the same area six years ago. The region prepared for significant damage, and many businesses and public services preemptively just shut down on Thursday night! However, despite the dire warnings and the city’s precautionary measures the storm did not reach the feared intensity. Tokyo was relatively mild, in fact. Sort of a nothingburger.
• Similarly, Japan also braced for a megaquake: On August 8, a significant earthquake struck near the southern island of Kumamoto, causing panic across Japan. Since that earthquake, the region experienced additional quakes. Seismic activity has been noted across the archipelago, including up to Fukushima and even to the northern island of Hokkaido. The authorities lifted the alert on August 15, but the Meteorological Agency continues to advise residents to stay vigilant. In fact, the beaches and seas were vacant of the normal throng of vacationers, so spooked was everyone by the earthquake alert and then the scare caused by the phantom monster typhoon. But then again, sometimes things are just like that.

Market Reactions to Bank of Japan Policies

The recent turmoil in the Japanese markets, triggered by the Bank of Japan’s unexpected policy changes, has been significant. 

Key Points:

• Two weeks ago, the market experienced its largest loss on Friday: On the following Monday, the largest dip in postwar history… only to see the market dramaticly rebound with a 12% increase on Tuesday (the highest jump in postwar history!). By the end of that week, the markets stabilized. This past week, the trading environment was quieter. This was due to the shortened, four-day work week with many people taking time-off. As a result, the markets remained relatively calm. Still, we are on our toes and watching carefully.
• Looking ahead, expect volatility: The yen is currently performing better, trading at $/¥147. Historically, Japan tends to fare well when the yen is in this range. When it approaches and exceeds $/¥150, market instability follows.
• The Bank of Japan has indicated that there will be no further rate increases this year: Although this has not been officially confirmed, sources suggest that additional rate hikes are unlikely until 2025. But, you know, that is a long way away. Given current volatility across the boards (not just here but in the USA, too), uncertainty will bleed into monetary policy invariably.

Update: LDP Leadership Race and Key Players

On August 20, the Liberal Democratic Party (LDP) Election Committee will hold its second meeting to determine the timing and duration of the leadership election. The most likely date for this election is September 20, which would set the stage for a 10-day campaign. The Prime Minister’s recent announcement that he will not seek re-election has opened the door for potential candidates to start their campaigns. In this week’s Cabinet meeting, in fact, Mr. Kishida openly instructed his administration that potential candidates could proceed with their campaigns, without fear of reprisal or rancor. This is a huge departure from the norm. Just imagine the Prime Minister saying this. There are many inside the Cabinet who qualify and are hungry for the opportunity. Just wow.

Upcoming Discussions:

• Moving forward, we expect to see a surge of candidates announcing their intentions. One notable candidate is Takayuki Kobayashi from Chiba, a four-term Lower House member who, despite being relatively new to the spotlight, has quickly gained popularity. He has already secured 20 endorsements and is will hold a press briefing to officially announce his candidacy TOMORROW!
• It remains to be seen what the Election Committee will instruct. With more candidates, this may trigger more time for campaigning. As result, the Ballot Date could be extended even to the last possible day in September, Friday the 27th. The new Prime Minister, who will be elected on September 20, will inevitably form a new Cabinet. He or she will likely incorporate previous contenders in the election cycle. This is a strategic move to reward popular figures and also to maintain support from those who ran against the new Prime Minister. The calculus here makes one’s head hurt.
• The new Cabinet will also likely introduce an economic stimulus package within the first 30 days to bolster popularity: a favorite trick. This strategy is designed to win public favor and set the stage for upcoming elections before the New Year. You cannot forget the impact of the U.S. presidential election on November 5. We distinctly expect influence on Japan’s economy and market dynamics, adding another layer of uncertainty.
• Historically, factional leaders dominate LDP leadership elections by handpicking candidates. While the party has transitioned away from this system, with only one major faction remaining, influential figures such as Taro Aso, Yoshihide Suga and now Fumio Kishida play significant roles. 
• Prime Minister Kishida’s decision not to run has sparked considerable speculation and analysis about his timing and motivations. Even though they were on non-speaking terms previously, he met with key figure Toshimitsu Motegi. This suggest renewed influence in the election outcome.
• As Japan moves toward a new leadership era, potential candidates include Ms. Yoko Kamikawa, the Foreign Minister, known for her competence and popularity, and Yoshimasa Hayashi, the Chief Cabinet Secretary, who has performed well under the Kishida Administration. Despite the dissolution of formal factions, Policy Study Groups continue to function. This reflects the enduring importance of political alliances; a return to factions is a likely outcome.
• The next election will distinctly determine LDP’s imminent future, as we see the impact of that kickback scandal. There has never been a shake-up like this before.

Update: Upcoming Leadership Elections and Party Dynamics

Key Points:

• In a notable convergence of political events, the Constitutional Democratic Party (CDP) will hold its leadership election on September 23, just a few days after the Liberal Democratic Party (LDP) elects its new leader on September 20 (or perhaps September 27 as the situation is now in flux). 
• The CDP’s leadership race has already seen a notable development with Mr. Isumi, the incumbent leader. He is facing competition from a former party leader (who has received the endorsement of the former Prime Minister within the CDP). This contest highlights the ongoing internal challenges and strategic shifts within the CDP as it prepares to position itself more effectively against the ruling LDP. Factions exist in other parties, not only in the LDP, we see.
• In addition to these developments, Komeito, the coalition partner of the LDP, is also preparing for its leadership transition. The current leader, who has held the position for a decade or more, will probably step down in favor of a younger successor.

The simultaneous leadership elections within these major parties will probably dynamically reshape Japan’s political landscape. This will potentially have a dramatic-impact on governance, coalition dynamics, and policy priorities. 

Geopolitical Shifts: G7 Leadership Changes

As we look ahead to the G7 Summit scheduled for June 2025, it’s notable that significant leadership changes have occurred within 3 of the 7 nations: the United States, Great Britain, and Japan. 

Key Points: 

• In Great Britain and Italy, new leaders have recently assumed office, bringing potential policy shifts to these countries. Such transitions can impact international cohesion, consistency, and predictability, each crucial for global diplomatic and economic stability.
• This pattern of leadership change is not confined to the G7. In the European Union, similar dynamics are at play, with notable shifts and disruptions within its political landscape. The EU is experiencing significant internal changes, which could further influence its external relations and overall cohesion. 

Overall, these geopolitical developments highlight a period of considerable transition and uncertainty, both within the G7 and across the European landscape. The changes in leadership across major economies will affect global stability and international relations, as countries navigate new policies and strategic directions.

Political and Economic Uncertainties in Japan

Japan’s own period of unprecedented political uncertainty goes beyond the upcoming leadership elections in the Liberal Democratic Party (LDP), Komeito and the Constitutional Democratic Party (CDP). It runs far deeper.

Key Points:

• Changes in Political Leadership: The LDP’s internal election will probably take place around September 20^th/27^th, with a likely 10~15 day campaign. Historically, the number of contenders has been small, but this time, up to nine or ten candidates may vie for the position. This scenario has never before occurred in Japanese post-war politics. The CDP and Komeito will also follow with their own leadership election, further complicating the political landscape. 
• The Japanese economy is also experiencing fluctuations: Recent reports have indicated both improvement and setback. The Bank of Japan’s recent actions, including a significant market disruption, have heightened economic uncertainty. The yen’s value, now at $/¥147, is stable compared to past highs but remains a point of concern. The Bank of Japan’s policy decisions, particularly regarding interest rates, are under scrutiny, and there is speculation about potential rate changes.
• Economic stimulus packages are expected: Many will perceive this as a move to boost the popularity of the new Prime Minister to address economic challenges. However, the impact of the upcoming U.S. presidential election on November 5th, coupled with Japanese domestic changes, will distinctly interject additional volatility.
• Despite the anticipated changes in leadership, substantial shifts in policy are unlikely: Japanese politics is characterized by a stable bureaucracy that often maintains continuity regardless of political transitions. However, we can expect shifts in emphasis and priorities, particularly in the context of the new Prime Minister’s Cabinet and their economic strategies.

LDP Leadership Election Process

Candidate Pool

As of now, potential candidates for the LDP leadership election include:

• Secretary-General Toshimitsu Motegi
• Former Defense Minister Shigeru Ishiba
• Digital Minister Taro Kono
• Economic Security Minister Sanae Takaichi
• Former economic security minister Kobayashi Takayuki
• Former Environment Minister Shinjiro Koizumi

Observers expect additional candidates to emerge as the election approaches.

 

Election Process

1. Initial Endorsements
   • Candidates must secure endorsements from at least 20 LDP members. The party has approximately 366 Diet seats (both Houses);
   • Without factional guidance, candidates now must rely on individual endorsements, making this step both more crucial and more challenging.
2. Campaigning
   • Once endorsed, candidates officially start campaigning. This phase includes debates, policy discussions, and potentially some negative campaigning.
   • Campaigns typically last around 12 days before the election date, which is determined by the election committee.
3. 1. 1. • First Round:
         • All LDP Diet Members vote, and all LDP party members vote
           • Voting Rounds.
           • The weight is evenly distributed 367 + 367 = 734. Party Member votes are distributed among 48 prefectures. Each prefecture’s voting power is proportional to its number of LDP members. If a candidate secures over 50% of the votes (368) in the first round, they are elected Prime Minister.
   • Second Round (if needed):
     1. If no candidate wins 367+ votes in the first round (highly unlikely with so many candidates), a second round t
     akes place
     1. immediately. This is between the two top vote-getters (remember the last time? The final two were Kishida vs Kono, with Kishida wining definitively). In this second round, the voting is split between 367 LDP Diet Members and 48 prefecture votes, i.e., 367 + 4
     8. The winner of the most votes becomes President of the LDP (not necessarily Prime Minister yet!).
     1. This round is heavily weighted towards LDP Diet Members, which can impact results significantly.

Political Implications

• Visibility and Influence:
  • Running for Prime Minister, even without winning, enhances one’s visibility and influence in the public eye. It also fairly guarantees future political opportunities in the form of a Cabinet or party seat. This has been seen with previous losing-candidates like Ms. Sanae Takaichi, Ms. Seiko Noda and Taro Kono. Expect this in spades this time around, too.
• Faction Dynamics:
  • The absence of strong factional endorsements means candidates must navigate without traditional support structures. This will make their campaigns more reliant on individual endorsements and public appeal. That is a lot more work on the candidate’s part, and it involves incurring indebtedness spread over many more individuals.
• Publicity and Strategy:
  • High-profile candidacies generate significant publicity, influencing both the public perception and future political maneuvering. This was evident in past elections where candidates gained prominence despite not winning.

Call for Generational Change

• A strong call for generational change within the LDP is indeed a revitalized (though not new) dynamic. The shift away from established factional leaders and the rise of not just younger but more female candidates will reshape the party’s image and strategies. PM Kishida even suggested this was a reason for him NOT to run… to allow this transition to proceed!
• It will be interesting to see how this evolution impacts the LDP’s performance in the upcoming general election and whether these changes will provide the boost needed for a more stable, palatable and effective governance structure.

Questions from the Audience Addressed Exclusively During the Briefing

• To what extent will Japan’s need to project regional stability to its closest neighbors and to her allies impact this LDP leadership race (and ultimately the selection of the new Prime Minister)?
• Do you think that there will be a resurgence of factions?
• Why do we not hear so much talk of factions within opposition parties? Do they exist?
• The combined GDP of the G7 was at one-time 70 percent; now 40 percent. In light of this decline in influence do you think it is necessary for Japan to reevaluate its membership?
• Do factions focus on policy or are they the result of personal relationships? How does a Member of Parliament choose a faction, or become included / invited into one?
• You mentioned that parties have influence on policy. However, much of that power resides within the technocrats & bureaucrats within the Ministries. Is there anyone in the system pushing against this, i.e., for a different distribution-mix?
• Would you say that the instability of Japanese politics will keep some potential candidates from running in this election?
• In light of Mr. Kishida’s comment that the LDP needs younger leadership, could you elaborate the profiles of Shinjirō Koizumi and Takayuki Kobayashi?
• Are not the issues and challenges that Japan faces larger than this leadership race? For instance, the likely turmoil generated by the US will swamp any uncertainties in Japan, don’t you think?
• Do you think relations between Japan and South Korea can improve?
• In your opinion, how might the election of a new leader influence Japan’s defense strategy and its relationship with the US? Are there any specific candidates whose victory could lead to significant shifts here in the military-industrial complex?
• How could the leadership change affect Japan’s economic growth strategy, particularly in terms of innovation and technological development? Are there concerns or opportunities that businesses should be aware of?
• In America, the Democratic Party is a big tent, encompassing a wide range of policy opinions. The LDP is even bigger, yet it seems to have fewer policy differences among its members. Why is this?
• You mentioned that individuals pick up experience and expertise in various areas but what about ideology? Is it assumed that you (as a Member of Parliament) possess a certain ideology when joining a party? Is it questioned or liable to change?

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