Japanese Politics Updates – December 22, 2024

Hello and welcome to the 202^nd Japanese Politics update! Here are the latest developments in Japanese politics, brought to you by Langley Esquire & Japan Expert Insights:

• Week closes at 156.46¥/$;
• Akie Abe, widow of former PM Shinzo Abe met President-Elect Trump;
• Diet Session extended until Tuesday 24th; the formal, constitutionally-mandated 150 day Session will start on January 24th (a Friday);
• George Glass is nominated to become the next US Ambassador to Japan, having previously served as Ambassador to Portugal.

Outcomes and Challenges from Extraordinary Diet Session

The Japanese Diet’s Extraordinary Session concluded with significant developments across multiple contentious areas, showcasing a mix of progress, compromises, and unresolved issues. Here is a detailed overview:

Political Funds Reform

The handling of political funds remains a major focus, as the LDP faced mounting pressure to improve transparency and accountability. Misuse of funds in benkyokai (briefing meetings), where money is collected and redistributed within factions, drew criticism from opposition parties and even Komeito, the LDP’s coalition partner. Key outcomes included:

Transparency Measures: Establishing a third-party monitoring system to oversee the collection and redistribution of funds. This independent body aims to ensure accountability without interference from Diet Members.

Foreign Contribution Ban: A blanket prohibition on foreign contributions to benkyokai was enacted. While largely symbolic and affecting a minimal number of individuals, the move was designed for public-consumption as “a safeguard against undue foreign influence”. The Diet deferred Broader reforms on corporate contributions to the next Session, leaving questions about the depth of reform unanswered.

Tax-Free Income Floor Debate

The Democratic Party for the People (DPFP) pushed hard to raise the tax-free income threshold from ¥1.03 million to ¥1.78 million, citing rising living costs and wage increases since the establishment of the threshold in 1991.

Outcome: After intense negotiations, the DPFP and the LDP reached a compromise to raise the threshold to ¥1.24 million as a first-step. Although this fell far short of the DPP’s demand, it marked forward progress, with LDP-promises to revisit the issue in the next Session with “…the aim of achieving  ¥1.78…”. Let’s see what actually happens.

Supplemental Budget

The Diet approved a record-breaking ¥13.9 billion supplemental budget, aimed at injecting funds into the economy amid rising inflation.

Focus Areas: This budget targets immediate economic relief, addressing issues like fuel costs, heating expenses and food prices which have driven inflation higher than expected (2.7% in the latest data).

Timeline: The funds are expected to flow into the economy starting late December and be fully utilized by April 2025.

Ethics Committee Hearings and Corruption Investigations

Unreported political funds and alleged misuse within the LDP, particularly among factions tied to former Prime Minister Shinzo Abe, prompted a series of closed-door Ethics Committee hearings last week.

Scope: Around 28 Diet Members, from both Lower and Upper Houses, testified about their involvement in receiving unreported funds. Many claimed they received instructions by senior officials that the funds were pre-approved and thus did not require reporting.

Prime Minister’s Stance: PM Ishiba took a strong stance, threatening to withhold party endorsements for Upper House Members who failed to participate in these hearings. This ultimatum underscores the LDP’s attempt to project a clean image ahead of the upcoming elections. If the Upper House elections this summer mimic the results of the recent Lower House elections, it could be the end of the LDP.

Future Steps: Open hearings have been scheduled to provide transparency, and more revelations are anticipated as investigations delve deeper into higher-ranking officials’ roles.

Political Negotiations and Opposition Dynamics

The LDP engaged in complex negotiations with opposition parties to secure the 51% majority required to pass legislation.

Key Allies:

• Democratic Party for the People (DPP): Focused on raising the tax-free income threshold;
  • Ishin-no-Kai: Advocated for free secondary and university education as a core demand;
  • Other Concerns: Stabilizing fuel costs through permanent government subsidies also became a point of negotiation.

Impact: These alliances allowed the LDP to navigate contentious issues and pass critical legislation, though at the cost of significant concessions.

Economic Implications

The Bank of Japan’s decision to maintain its interest rate despite rising inflation and currency depreciation added another layer of economic uncertainty.

Yen Weakness: The yen weakened from 153 to 156 against the dollar, driven by the central bank’s inaction and rising inflationary pressures.

Inflation Drivers: Rising costs of fuel, heating, and fresh food are on the list as major contributors, exacerbating public discontent. The rise in bankruptcies and suicides are a worrying by-products.

Preparations for Future Elections

With Upper House elections looming in 2025, political dynamics within the LDP and between opposition parties will likely intensify. The corruption scandals and the effectiveness of recent reforms could significantly impact public perception and voting outcomes.

This Session underscored the challenges of governing amidst rising public dissatisfaction, economic uncertainty, and internal factional struggles. While there was progress on certain fronts, such as transparency in political funds and modest economic relief, many issues remain unresolved. The next Diet Session will likely revisit these debates, setting the stage for further political wrangling in the months ahead. The new Session in 2025 will be particularly hard on the LDP and on PM Ishiba.

Key Developments Looking Forward

Diet Session and Elections:

The next Diet Session, required to start in January, will end on July 20th after its 150-day term. Elections for the Upper House will follow immediately afterward, as the Diet must close before elections begin.

Prime Minister Ishiba’s Leadership:

Ishiba focuses on revitalizing rural areas, promoting infrastructure projects, and curbing urban migration. However, critics highlight his lack of Kishida-like political skill and charisma. Internal opposition, including figures like Suga and Kishida, could challenge Ishiba’s leadership once the budget passes on April 1st.

Kishida’s Potential Comeback:

Kishida, a seasoned diplomat and former Prime Minister, remains in the background but may position himself for a return. Observers see parallels to Shinzo Abe’s successful political resurgence. It could happen.

Election Dynamics:

Political strategies may lead to a double election, aligning Upper and Lower House elections to fall on the same day. The ruling LDP might time the elections to leverage public support, while the opposition could push for a no-confidence motion to gain ground. Right now it is a toss-up but there is plenty of backroom finagling. The opposition camps are, for the first time in a long while, hopeful for an upset.

Spring Outlook:

The months between April and July will likely bring intense political activity, with leadership and election outcomes shaping Japan’s direction.

Defense Budget Increase and Financing Strategies

Japan, under Prime Minister Kishida, committed to raising the national defense budget from 1% to 2% of GDP. This is a significant move originally proposed by Shinzo Abe. This decision has been ongoing for two years and enters its third year. However, the government has yet to clearly identify how precisely to finance this increase. 

Several potential options have been under discussion, including raising taxes on consumption, corporations, and individuals. A original proposal suggests increasing the tobacco tax, as a politically popular bad-boy. However, the Diet deferred raising corporate or individual income taxes until 2027, with a likelihood that it will happen eventually. Kicking that ball down the road again and again.

The government is also considering selling assets such as land, buildings, and forests it owns, including agricultural land and ports. While details remain uncertain, we expect that by April of the next Diet Session, there will be a clear plan on how to cover the defense budget increase.

Bank of Japan’s Inflation Struggles and Economic Impact

Inflation remains a pressing concern for Japan’s economy. The Bank of Japan’s Governor Ueda recently concluded a two-day meeting, where the main focus was on inflation and whether to raise interest rates. While inflation is a growing concern, the US Federal Reserve’s actions earlier in the week caused Ueda to adopt a more cautious stance.

 Consumer prices in Japan rose by 2.7% in November, up from October’s 2.3%, surpassing the target inflation rate of 2% yet again (18 months in a row!). The primary driver of this increase is energy prices, as Japan imports most of its energy needs. Despite these challenges, many expect the Bank of Japan to maintain its monetary easing policy until at least January or February, with potential actions in March that could significantly impact the economy.

Rising Crime in Japan: Trends and Concerns

Crime in Japan has seen an uptick, particularly among younger people, amid shifting social dynamics influenced by social media and increased access to information. While some argue that better reporting and police work are merely making crime more visible, the statistics indicate a real rise in criminal activity. 

A recent White Paper from the Japanese government revealed a 8.2% increase in law enforcement actions against individuals in 2023. This is the first such rise in 19 years. Notably, non-consensual intercourse cases spiked by 63.8%, though the actual numbers remain relatively small, while indecent assault increased by 29.5%. Experts suggest the changes in consent laws and improved reporting mechanisms could contribute to these numbers. 

Furthermore, child abuse, cybercrime, and cannabis violations have also risen significantly, with cannabis-related arrests jumping by 19.5%. Cannabis violations are especially high among people between 20-29 years of age, who account for over half of the arrests. The involvement of foreign residents and visitors in crimes has also surged, with a 20% increase. Another notable shift is the rise in female inmates.Women now account for 10% of new prison admissions, many of whom are over 65 years old. This increase in older female offenders contrasts with a more stable trend among men, particularly in the same age group.

Rising Levels of Tourism

Japan is experiencing a surge in foreign visitors, with a record-breaking number expected this year. In the previous 11 months (figures for December not yet available) of 2024, Japan welcomed 33.4 million visitors, surpassing the 2019 pre-COVID record of 31.9 million. Notably, October saw the highest number of visitors ever recorded at 3.31 million, while November had 3.19 million. 

Factors driving this influx include “revenge tourism,” as people who couldn’t travel during the COVID-19 period are now traveling, and the weak yen, making Japan an attractive destination due to lower costs. This trend has created a vibrant atmosphere in Japan, with both cultural and social activity on the rise.

Questions from the Audience Addressed Exclusively During the Briefing

• Why does Trump favor Ambassador George Glass, and in what ways might he be different from Mr. Rahm Emmanual?
• With the LDP negotiating simultaneously with the DPP on the income tax and with Ishin-no-kai on education reform, is the LDP sewing the seeds to be regarded as untrustworthy by both sides and could this lead to a grand coalition of opposition parties?
• How feasible are Tamaki’s plans to raise the tax-free income threshold without putting pressure on local governments?