Japanese Politics Updates – June 16, 2024

Synopsis of the 175th Japanese Politics Update produced by Langley Esquire and Japan Expert Insights and delivered from Tokyo on June 16, 2024.

The current Diet session, which began on January 26 and is constitutionally set for 150 days, is slated to end next Sunday, the 23rd—just one week from today (unless it gets extend, which remains as a possibility). Prime Minister Kishida still has many Bills proposed for legislation, but it’s increasingly clear that he will be forced to concede on some of them for this Session. As we approach the Session’s end, each new development becomes more critical and compelling, revealing consequences of past actions just emerging from the recent past:

• Upper House Vote on Reform Legislation
• Opposition Leaders vs PM Kishida This Wednesday
• Prime Minister’s Approval Rating Dives Again
• “No Snap Election nor Cabinet Reshuffle”: PM Kishida
• Motegi and Aso intimate dinner beeting
• Koike Yuriko Announces Candidacy for Governor
• Bank of Japan Policy Board Meets

So, let’s dive deeper into this and what-else transpired over this hectic past week:

Yen Drops Following the BoJ’s Monthly Policy Meeting

The Bank of Japan (BoJ) held their monthly policy meeting this week, leaving financial markets reeling. BoJ announced a significant reduction in its volume of Japanese government bond purchases. The bank slashed the previous amount of ¥6 trillion yen to an unspecified figure while holding to the zero interest rate policy. Unsurprisingly, this move sent shockwaves through the markets. It caused the yen to shoot up rapidly against the dollar, peaking at $/¥158 yen. As confusion and concern spread, BoJ governor stepped in to “re-clarify” his statement. The “re-clarification” helped to stabilize the yen somewhat later in the day. Currently, the yen is trading at around $/¥157.4 yen.

Policy Implications

We anticipate that this reduction in bond purchases, together with the yen’s appreciation, will negatively impact the Japanese economy, particularly imports. The future trajectory of the yen and the overall economic outlook remains shrouded in uncertainty, hinging heavily on the BoJ’s forthcoming policy decisions. More details regarding this policy will trickle-out in following weeks. But it looks like there is a willingness for the yen to find its own level.

Nippon Ishin-no-kai: Friend or Foe?

As mentioned before, Prime Minister Kishida front-and-centered his reform legislation. He leveraged the LDP’s strength to pass it in the Lower House in disregard of everything else, including his Komeito coalition-support. However, to pass in the Upper House, the LDP requires a coalition partner. Komeito, their current ally, has been advocating for greater transparency in political donations. To secure the necessary backing, Nippon Ishin-no-Kai (Ishin) was approached to join the coalition and supported the legislation, understanding they would have their own requirements & reservations and cost for doing so. Ishin successfully pushed for a reduction in the cap on unreported donations from 200,000 yen to 50,000 yen, a condition to which the LDP conceded. And so they agreed…

With Ishin’s support, the legislation sailed through the Lower House. But it immediately hit a snag in the Upper House: the LDP didn’t actually commit that the reduction would happen immediately or even this year and so Ishin felt betrayed & used, and withdrew its support that day in the Upper House. Ishin accused the LDP of deception. The LDP can still rely on Komeito to push the legislation through the Upper House. However, the decision to concede to Ishin’s demands has undoubtedly left a sour taste in Komeito’s mouth (to say nothing about Ishin!). Despite this setback, speculation is rife that Ishin and the LDP might still form a coalition government in the future. This will add another layer of intrigue to the already complex political landscape. But clearly, lots of toes were stepped upon (maybe unnecessarily, maybe purposefully).

Constitutional Revision and Imperial Succession to be Pushed Aside

Amid the drama and controversy surrounding the reform legislation, other important pieces of legislation have fallen by the wayside. The LDP admitted this week that editing the Constitution needs to be postponed. The proposal aimed to bypass elections during “emergencies”. It will potentially pave the way for further changes, particularly regarding Article 9 (limits military capabilities). If successful, this revision would be significant, as the Constitution has never been revised throughout the post-war period. This news to postpone the promised revision is particularly upsetting for the LDP members, as it was one of the first commitments which the Prime Minister made upon taking office. Similarly, the discussion on Imperial Succession has also been shelved. The treatment of Empresses-husbands is the sticking-point unresolved, delaying any progress on the Bill.

Key Players of the Race for Premiership

Prime Minister Kishida’s decision to sideline constitutional revision has sparked outrage among the right-wing of the Liberal Democratic Party (LDP). It is not only this, but a myriad of other Kishida moves, which have conspired to set the stage for fierce competition for the premiership. Key players who will influence the outcome are Deputy Prime Minister Taro Aso and Secretary General Toshimitsu Motegi. They recently held a private dinner once the Prime Minister left for Italy and the G7 Summit this last weekend. Isn’t it too bad that the Prime Minister couldn’t make this dinner?

It is unlikely for Aso to run for Prime Minister given his previous tenure as PM combined with his advanced age. (It is unlikely he will run again and he has already promoted his son as his protégé.) Motegi, on the other hand, is in a strong position to succeed. Still, he faces significant challenges (widespread unpopularity being one of them!). Immediately-past Prime Minister Suga is also a player. He is unlikely to return as Prime Minister due to his age and energy levels. However, many expect him to play a pivotal role in the race by supporting candidates he likes, like Shigeru Ishiba, Shinzo Koizumi’s son, Shinjiro, current Foreign Minister Kawakama.

The next two~three months leading to the LDP presidential election in September promise to be contentious and intense. We are already seeing strategic maneuvering among the potential candidates and their supporters.

“Balloon Diplomacy” in the Korean Peninsula Escalates

Tensions on the Korean Peninsula have reached new heights with the advent of “balloon diplomacy.” North Korea initiated this unusual tactic of sending balloons filled with trash, paper, fabric, and even feces over the border into South Korea. This is in retaliation, as South Korea has long-launched its own balloons carrying pamphlets, leaflets, documents, CD-ROMs, and thumb drives into the North. The tone is turning nasty; both sides now have stadium-rated loudspeakers blasting at each other.

Japan to Help U.S. Boost Weapons Production

Japan and the US this week concluded agreements to integrate their respective defense industrial bases, marking a new era of military collaboration between the two nations. Together, they plan to co-develop and co-produce missiles and other critical assets, enhancing their combined defensive and offensive capabilities. In a move that underscores their commitment, Japan will grant access (is anyone paying attention?!?) to its commercial ports, commercial aircraft facilities, and commercial airports for the purpose of receiving, warehousing, maintaining, repairing, stationing US military ships and fighter jets. This partnership comes at a crucial time, as the US seeks to replenish its depleted arsenals in the wake of the ongoing Ukraine war, relying heavily on Japan’s robust industrial capabilities.

Policy Implications

As reported here two weeks ago, Japan also advanced its defense technology. The step forward comes through the development of a next-generation fighter aircraft in collaboration with Italy and Britain. Recent legislative changes in the Diet this week pave the way for Japan to engage in arms production and sales. This includes the export of offensive capabilities. These developments are stretching the limits of Japan’s pacifist constitution, which traditionally restricts the country from participating in certain military activities. Japan and the US are deepening their defense ties. Meanwhile, they are navigating a complex landscape of evolving military norms and international security challenges.

Japanese Corporate Bankruptcy Surges in May

In a troubling revelation, Japanese corporate bankruptcies surged in May, reaching levels not seen since 2013. Analysts believe that the withdrawal of low-interest or zero-interest loans that the Japanese government aggressively distributed during the COVID-19 pandemic has contributed to this sharp increase. These loans now come due, and companies are struggling to repay them. This is compounded by the growing lack of available workers, a weakening yen, and the inability to lower prices to align with market realities.

The service industry has been particularly hard-hit, with restaurants and hotels accounting for approximately 55% of these bankruptcies. Although the influx of foreign tourists offers some relief, it is insufficient to offset the significant financial burdens that businesses continue to face due to the pandemic’s lingering impact. The situation highlights the precarious state of many Japanese businesses as they navigate post-pandemic economic challenges.

24-year-old Sets Sailing Record

In an extraordinary feat of endurance and skill, 24-year-old Japanese sailor, Hirotsugu Kimura, is the youngest person to solo circumnavigate the globe. Embarking on this daunting journey, Hirotsugu sailed for an astonishing 231 days. He didn’t make any port calls nor received external supplies or assistance. His achievement is all the more remarkable due to the fact that it has been 35 years since a Japanese sailor last accomplished this formidable feat. Hirotsugu feat stands as a testament to courage, determination and seamanship. It inspires awe and admiration among sailors and adventurers around the world. Who said Japanese youngsters lack drive and ambition?

Questions & Comments

• Is the former Prime Minister Suga going to support the Kishida Administration, possibly entering the cabinet as Deputy Prime Minister?
• Don’t you think that everybody has underestimated Prime Minister Kishida’s political acumen? … just look at his staying power.
• David Cameron, the former Prime Minister of the UK, currently serves as a Foreign Minister under Rishi Sunak. Could a similar situation occur in Japan, where former Prime Ministers remain in government and take “secondary” positions to continue their careers? How is this in Japan?
• What is the history between Governor Koike and the LDP? How does she feel about LDP support impacting her voter-base? What’s your take on the Tokyo Governor election?
• In case Governor Koike loses to Renho, do you envision her (Koike) returning to national politics?
• We rarely hear about Japan talking about tariffs-as-a-tool when attempting to increase trade-and-investment? Is this because of inflation?
• Do you think the military cooperation between Japan and the US, as outlined in the Treaty of Mutual Cooperation and Security, could change to include offensive actions instead of just defending Japan?
• As the yen weakens, do you see Japan becoming a retirement destination for foreigners? Would settling-in-Japan foreigners enjoy a more favorable tax treatment in their home country?
• What impact does the current situation with the Governor of Hyogo (retiring in July) and the unfulfilled promises from Osaka Governor Yoshimura (to join Osaka City and Prefecture together) have on Ishin’s credibility?