Japanese Politics Updates – June 2, 2024

Welcome to the June 2 Japanese Politics Update, delivered by Langley Esquire and Japan Expert Insights.

June is here, and with only 20 days left in the Diet session, things are heating up. This past week has been eventful both within the Japanese Diet and geopolitically. North Korea fired several rockets, causing an alarm in Okinawa. The Prime Minister’s reform council was set to present their proposal on Monday, but the LDP hit a roadblock with coalition partner, Komeito. Unable to reach agreement, the LDP decided to proceed alone, and yet then again, past the deadline, the coalition reached terms on Friday. They aim to pass legislation to reform the Political Funds Control Law this week. With only 20 days left, they’re pushing this through. I’ll discuss the dynamics today.

Last time we met was election day for the Shizuoka Governor, as you may remember. The LDP-endorsed candidate lost significantly to the Constitutional Democratic Party (CDP) candidate, marking the CDP’s fourth consecutive win. Today, too, is a minor election for Minato-ku Mayor. This election is once again pitting the LDP against CDP and others; a loss here in one of Tokyo’s 23 Wards would be meaningful.

To top that off, the Tokyo governor’s race is about to begin. Surprisingly, the current governor, Yuriko Koike, did not announce her candidacy on the day candidates could first announce (Wednesday): 20 others did so. She has done this before, so it’s not definitive, but it’s worth watching. Additionally, the Finance Ministry confirmed in their report last Friday that the Japanese government massively supported the yen (to the tune of US$62.2 billion), as we discussed earlier this month.

This week webcast a 20-minute briefing on Japan’s Energy Future, focusing on the latest hydrogen policy developments (“Hydrogen and Ammonia: The Keys to Japan’s Energy Security” available on Langley Esquire’s YouTube Page.

So let’s dive right into what transpired this past week:

Shizuoka Gubernatorial Race: “Much about nothing”?

The Shizuoka gubernatorial race concluded with a remarkable victory for the Constitutional Democratic Party’s candidate, Yasutomo Suzuki. Triumphantly, Suzuki secured his win with a five-point lead, garnering 77,000 more votes than his opponent. This outcome marked a significant blow to the Liberal Democratic Party (LDP), which faced its fourth consecutive loss in regional elections. In a surprising turn of events, the LDP-endorsed candidate fell short, despite receiving robust do-or-die backing from LDP Members. Astonishingly, around 30% of LDP members cast their votes for the Constitutional Democratic Party’s candidate. This added to the drama and unexpected twist in this political tale. These numbers telegraph disaster for the LDP.

Policy Implications

The teetering of the LDP has sizeable implications across the spectrum. The LDP became bigger and more powerful, immovable in fact. The reason for that was because they controlled the division of all the Diet Members into Cabinet Seats and that is how state subsidies are distributed into the economy. As Ministers, these Diet Members have tremendous say in the award of contracts. So Ministers always get circulated and amass more political power. To become Prime Minister, in fact, requires not just several successive Ministerial portfolios but certain specific ones indeed.

The likelihood of a snap election implicates the number of seats and the LDP is very close to those in opposition becoming numerically stronger than those inside. This would impact the relations between big business and LDP and the policies the LDP puts in place to support the corporations. This would be the start of a new era that invites changes in tax policy, defense, international trade, constitutional revision, imperial succession.

LDP Struggles with Komeito

In the intricate dance of political negotiation, the LDP and its coalition partner, Komeito, found themselves at odds over the crucial Political Funds Reform Bill. The LDP stood firm, preferring little change to the current system. At the same time, Komeito (“The Clean Government Party”, remember?) pushed relentlessly for more transparency. The LDP argued that the proposed reforms were too intrusive, fearing they would discourage essential donations. In contrast, Komeito and the opposition viewed the reforms as necessary. The aim was to prevent the LDP from protecting its own interests to the detriment of everyone else. Komeito clearly held the upper hand here.

Money, the lifeblood of Japanese politics, is vital for politicians to maintain their positions and hire necessary staff. The LDP’s strength and deep entrenchment stem from its vast number of experienced Diet Secretaries and from substantial financial resources. Initially, the LDP and Komeito clashed over reducing the contribution limit per individual, leading the LDP to draft the bill without Komeito’s support. In a strategic pivot, the LDP considered partnering with Ishin to pass the reform bill in the Upper House, potentially sidelining (and sending the shivers up) Komeito.

Prime Minister Kishida, feeling the pressure to pass the reform legislation during the current Diet session, continues to make bold unilateral decisions. He banned factions and appeared before the Ethics Committee without an invitation, even without conferring with his closest Members, including powerful Deputy Prime Minister Taro Aso (are they even still talking with each other?) signaling his determination. Eventually, the LDP and Komeito reached a compromise, with the help of Ishin joining in(!?). Komeito finally agreed to support the LDP’s legislation. However, this agreement is in exchange for concessions, such as lowering the threshold for submitting receipts but collapsing to the LDP promise “to reform the receipt system within the next ten years”.

Despite this political maneuvering, the inner-fighting invited significant public backlash. Many citizens voiced their concerns to the Prime Minister. With the current Diet session ending in less than three weeks, the LDP will likely rush this to a vote this week. This will mark a pivotal moment in this unfolding political saga. Does anyone else feel this is a scramble?

Policy Implications

Komeito is chaffing in their relationship with the LDP. When you think about it, they are unlikely allies after all. Yet, politics is all about numbers. Komeito is smaller than CDP and Ishin. However, over 25 years, while holding its nose, Komeito gets at least a Ministers Seat in the Cabinet and the LDP gets just enough votes to hold a majority (i.e., railroad if necessary) in the Upper House. There is always the Komeito-temptation to bolt and form an alliance with the opposition parties and kick-out the LDP (maybe even take the Pole Position as a result). However, that is a big gamble.

However,it is there and, like today, palatable. The LDP has clearly threatened Komeito by openly chumming-up with Ishin. Ishin wants to surpass the CDP (and recently they are looking poor by comparison). They also desperately need the EXPO to be a resounding success for (a.) Osaka and (b.) Ishin. The LDP on their part wants as little as possible revision of the Political Funds Reform legislation. They also want to diminish the growing threat of the CDP. As a result, there is furious horse-trading. This will impact whether the Diet will be extended. It also impacts the PM’s decision to close-the-House for an election. It impacts whether the Bills under consideration will be in time to vote into law.  

Renho announces for Tokyo Governor

Renho Saito, a prominent figure in the Upper House within the Constitutional Democratic Party, officially announced her bid for the Tokyo governor. With a distinguished 24-year tenure in the Diet, Renho rose to prominence during the brief three-year period when the Democrats held power. Her youth and significance within the Constitutional Democratic Party make her a compelling candidate. It is a bold move, in fact. She must resign her position to run. Additionally, the primary competition is expected to be between Renho and current governor, Yuriko Koike. The campaign kicks off on June 20th and will run until Election Day on July 7th. 

Adding to the intrigue, Governor Koike, the founder of the Tomin First no Kai(Tokyoites First Party), has yet to announce her candidacy, a surprising development given her usual prominence in a race she dominates. The contest is predicted to be fiercely competitive.

The Constitutional Democratic Party is riding high with the LDP losing straight the last 5 elections. Four these seats went to the CDP.  Now setting its sights on securing the Tokyo governorship, this will be fierce. Given the rout that is the LDP recently, front-runner Koike may not run under an LDP umbrella or even go for an endorsement. And if THAT is the case, what will the LDP do… allow Tokyo to go to political enemies? Isn’t there one in the LDP of similar Renho-like status to shake-up the electorate? Amidst this political fervor, there is ongoing speculation about potential political reforms and negotiations between Ishin and the Prime Minister. This adds another layer of complexity to this already riveting race.

Policy Implications

The LDP must avoid the situation where the largest city in the world is run by a political party in opposition to the national government. This hasn’t happened before. Even today, while Governor Koike has a long running feud with the LDP, they are not that different politically and she springs from the LDP originally. On the other hand, it was Renho’s CDP who won the last 4 elections. This is in addition to her former Secretary winning the Minato-ku Mayor position last week. So the groundswell has already started. Things get done, i.e., construction, in the big city because of the close connections. 

Of the many make-or-break situations, this one is high on the list to maintain. However, the LDP doesn’t even have a candidate.  This will be a volatile summer until the LDP election of their President. Other issues will be secondary or worse until there is settlement. As a consequence, the idea of folding-up the House (a viable option days ago) for a general election is dissipating. 

Ministry of Finance Report Confirms Intervention of the Yen

The Ministry of Finance recently confirmed the government’s decisive intervention to bolster the Yen in a report released last month. At the beginning of April, the Yen stood at a concerning $/¥171. Nowadays, due to significant government action, the yen has strengthened to ~$/¥157. The Japanese government’s ¥9.8 trillion-yen (US$62.2 billion) injection into the market, over a two-day period surpassed even the shockingly large ¥9.1 trillion-yen intervention in 2022, 1.8 years ago. 

One response to these financial shifts was the Prime Minister’s ambitious plan to attract asset managers to Japan, announced this week. The aim is to transform Tokyo, Sapporo, Fukuoka, and Osaka into magnet centers and Special Economic Zones by offering tax incentives to asset managers to establish operations there, essentially promoting Japan as an attractive alternative to Hong Kong and Singapore. Will it work?

Challenges remain. The language barrier and the perception that foreigners are not fully welcomed in Japan pose significant obstacles. For example, again this week, Charities Aid Foundation (CAF) released their World Giving Index for 2023. Here they ranked countries in three different categories: donating money to charity, helping a stranger, and volunteering time. Alarmingly, maybe counterintuitively? Surprisingly, Japan ranked last out of the 142 countries surveyed.

The anticipated influx of foreign asset managers and their families also obviously necessitates infrastructure development in designated cities. To truly compete with Singapore, known for its appeal to foreigners, Japan must enhance its infrastructure and language accessibility. This feels like a 10-year plan at minimum. 

The policy implications of these developments are set to be discussed in the Prime Minister’s Office in two days, as the government strategizes on how best to implement and sustain these ambitious plans. We will report on this next week.

Policy Implications

Clearly, in spite of admonitions from the US, EU central bankers and others in the G7, Japan will not tolerate the yen going below a certain figure and thus be laid-bare when it comes to imports. In the realm of stunning figures, this ¥9.8 trillion to purchase yen is astounding. This means that tourism will continue to boom and infrastructure to support it will start appearing more robustly. We expect it to include developing unique experiences outside the main tourism destinations (and purposefully steering people there). Based on these policies, tourism is expected to become an engine of growth.

Prime Minister Kishida in Seoul for Trilateral Summit

Prime Minister Kishida this week attended the trilateral summit: China, Japan, and South Korea in Seoul. This was the first such meeting since 2019. The summit had been on hiatus due to escalating tensions between China and Taiwan, and strained relations between South Korea and Japan. Despite these challenges, the leaders convened to focus on nine key areas, including people-to-people exchanges, disaster relief, and AI.

Notably, the summit steered clear of more controversial topics such as military issues and China’s restrictions on Japanese food imports. The participants opting instead for more collaborative and less contentious discussions. Talking is better than not talking, the thinking goes.

Following the summit, Prime Minister Kishida returned to Tokyo. He immediately met with Liu Jianchao, the head of the Chinese Communist Party’s international department. This meeting underscored the ongoing diplomatic efforts to strengthen bilateral relations and address broader regional issues. The Prime Minister’s engagements highlight Japan’s strategic role in facilitating dialogue and collaboration in the region, even amidst complex geopolitical dynamics. 

In furtherance of these goal…

Prime Minister Kishida in pursuit

Prime Minister Kishida met right away after with Toshihiro Nikai and other staunchly China-leaning political bigwigs. Nikai is a senior Member of the Japanese parliament and probably the most China-friendly of all Diet Members. Discussions centered on China and Japan-China relations, suggesting a stance to strengthen diplomatic ties and enhance bilateral cooperation. This reflects Japan’s nuanced approach of navigating its relationship with China amidst evolving regional dynamics. 

Minister of Defense Kihara Meets His Chinese Counterpart Admiral Dong Jun in Singapore

Remember, this is all within the span of one-week! Japanese Defense Minister Kihara met with his Chinese counterpart, Admiral Dong Jun, at the Shangri-La Dialogue in Singapore. Their discussions revolved around defense issues and the potential for resolving longstanding tensions between the two countries. They set the stage for a possible visit to further these efforts. Meanwhile, Kihara also held talks with South Korea’s Defense Minister. They addressed a 2018 incident where a South Korean destroyer locked onto a Japanese patrol plane, an event that has caused significant strain between the two nations ever since. That is a long time to hold a grudge unresolved at the defense-level.

The United States has long expressed concern over the lack of cooperation & coordination between South Korea and Japan. The cold relations pose a challenge to forming a coalition of like-minded countries against North Korea. In a strategic move, the US Indo-Pacific Command established their headquarters in Tokyo. The Commanding Officer’s first visit to the Japanese Prime Minister to introduce himself underscores this shift. This relocation from Hawaii to Tokyo signifies an increased US focus on the region and Japan’s role, aiming to strengthen alliances and enhance regional security dynamics amidst the complex geopolitical landscape. This is not a development to be ignored.

Policy Implications

These last three items dealing with China specifically: with the US and coalition countries piling-on to build this bulwark of like-minded countries against China, you can anticipate some serious doubling-down from each-side. Japan is the fulcrum-point, heavily reliant on the United States for its defense while struggling to maintain a vibrant economy (for the last 20 years now!). What can be the basis of a military-industrial complex is being built now, even though it is not acknowledged or publicized.China, too, is willing to provide some serious concessions in order to draw Japan closer. What will the first big step in this direction be? 

Report Reveals Grave Need for Tokyo to Update Air Defense Capabilities

A recent report underscores the urgent need for Tokyo to enhance its air defense capabilities. This is due to existing vulnerabilities and a lack of integration. The rapid advancements by North Korea in hypersonic missiles, swarm technology, and overall arsenal capabilities have heightened concerns about Tokyo’s defense readiness. Given Tokyo’s central role in Japan’s economy, protecting the city from potential large-scale incidents is paramount to avoiding severe economic repercussions.

In anticipation, Japan plans to significantly increase investment in air defense systems and work towards better integration with the United States and other allied nations. Currently, Japan employs a variety of systems tailored to address different types of threats, including higher-flying missiles, lower-slower missiles, cruise missiles and drones. Recognizing the evolving threat landscape, Japan has decided to bolster these defenses further to ensure comprehensive protection. The enhanced collaboration with international partners aims to create a robust and cohesive defense strategy capable of addressing both existing and emerging threats. Expect fast growth in defense industries and import/export refinements.

Policy Implications

An example of doubling-down: the homogenization of US and Japanese causes serious consternation within the Diet about the integration of SDF with the US Pacific Command. So does the prospect of Japanese soldiers under the command of a US rather than a Japanese individual. US warships can be serviced in Japanese ports now, too, and airfields are being hardened to accommodate a range of contingencies beyond Japanese defense-assets. Expect more foreign troops, higher caliber officers & families in Tokyo, far more foreign direct investment in the major cities, a noticeable change in international schools throughout the country, from Kumamoto to Hokkaido, and high-tech manufacturing returning to Japan.

North Korea Fires 10 Ballistic Missiles and Plans to Launch Another Spy Satellite

North Korea’s recent attempt to launch a spy satellite ended in failure, much to the relief of the public. In fact, not knowing what it was, but launched on Monday evening, television-stations throughout the nation alerted the people. Blaring alarms sounded throughout Okinawa and the southern islands to ‘seek shelter quickly!’ where the trajectory was directed. This was the same day as the Trilateral was being held in Seoul, remember. However, exploding in mid-flight did not temper the country’s aggressive military stance. North Korea fired 10 ballistic missiles the following day, displaying what is thought to be a new strategy to overwhelm defense systems by swarming. In a rare admission, Kim Jong-un acknowledged the failed satellite launch but vowed to persist in advancing missile technology. 

Adding to the tension, North Korea launched 260 balloons carrying trash & feces into South Korea, a provocative act that marks a stark departure from its earlier rhetoric of brotherhood and peaceful unification. This escalation in both missile activity and psychological tactics underscores the volatile nature of North Korea’s actions and its impact on regional stability. It is not that S. Korea has not done similar things with balloons in the past. (They have not used trash & human waste, though.) This significant escalation is likely to trigger a reaction. We will keep our eye on this.

Policy Implications

Remember that President Yoon lost his majority in the recent election, so the opposition directed against him and his policies (drawing S. Korea closer to Japan and to the US) are at serious risk. With this as backdrop, escalations from N. Korea will trigger political turmoil in S. Korea. China will be seriously courting S. Korea in trade and investment and thus emboldening the opposition.  At the same time, production and R&D for hypersonic and first-strike capabilities will be growth industries in Japan, eventually for export as well. Article 9 breaches will trigger tiny-at-first, then wholesale revisions of the Japanese “peace” Constitution.