Japanese Politics Updates – November 10, 2024

Welcome to the 196th episode of Japanese Politics One-on-One!

This has been a tumultuous and exciting week on both sides of the Pacific Ocean. Here is a list of the events we talk about in this episode:

• Week closes at $/¥152.69
• Trump wins the US election. Will assume the presidency in mid-January. Mr. Ishiba spent 5 minutes talking with him on Thursday. Reported to have been cordial.
• Parliament nominates a new PM tomorrow.
• Komeito anointed new president Tetsuo Saito yesterday, after the previous leader lost his seat.
• CDP now holds budget committee chairmanship; the opposition has not held such a key position for 34 years.
• The APEC (Asia-Pacific Economic Cooperation) summit is being held in Peru, starting tomorrow (Monday).
• The Prime Minister will join APEC from Friday to Saturday, taking a break on Sunday.
• After APEC, he will travel to Rio de Janeiro for two days to attend the G20.
• Upon returning to Japan, it is expected that he will visit President-elect Donald Trump to pay respects and meet with him.

PM Selection and Political Landscape

Japanese Prime Minister Selection and Political Landscape

Tomorrow, the Japanese Parliament (Diet) will convene to select the new Prime Minister. Both houses of the Diet will vote to confirm the Prime Minister. Given the divided landscape, two rounds may be necessary. In the first round, parties will likely vote along party lines:

• LDP for Mr. Ishiba
  • Constitutional Democratic Party for Mr. Noda
  • Democratic Party for the People (DPP) for Mr. Tamaki

With no clear majority expected in round one, the second round is likely to pit Mr. Ishiba against Mr. Noda. There is speculation that the Constitutional Democratic Party and the DPP might unite to form an opposition coalition, possibly offering Mr. Tamaki the prime- ministership if they can gain sufficient support from other minor parties.

Key Political Movements and Resignations

Party Leadership Changes: Mr. Baba, leader of Ishin-no-kai, announced he would not seek re-election at their December convention, stepping down due to the party’s performance in recent elections.

Committee Assignments: The Constitutional Democratic Party secured the influential chairmanship of the Budget Committee in the Lower House, a powerful role for shaping legislative priorities.

Policy Challenges and Negotiations

Opposition Negotiations: Mr. Tamaki is negotiating with both the LDP and the Constitutional Democratic Party. While he has expressed reluctance to join a coalition, he is open to cooperating on shared interests.

Potential Policy Concessions:

• Tax Relief: Discussions include reducing gasoline taxes and improving economic support for lower-income citizens.
• Stimulus Initiatives: In light of a slowing economy, there is pressure on Mr. Ishiba’s administration to provide relief through supplemental budgets and tax cuts to stimulate spending.

Upcoming Schedule

Parliamentary Session and Budget Discussions: This special Diet session will address the Prime Minister’s selection and potentially discuss budget proposals, including a supplemental budget to fund economic relief measures.

International Obligations: Following the Diet session, the Prime Minister is scheduled to attend APEC in Peru and the G20 in Brazil. A potential visit to Washington, D.C., to meet with President-elect Trump may follow.

Additional Diet Session: After returning to Japan, another extraordinary session is anticipated, likely extending into December, where further economic stimulus measures may be debated.

Transition to U.S. President-Elect Donald Trump’s New Administration

Donald Trump is set to become the 47th President of the United States, following his recent election victory. As President-elect, Trump will continue the transition process until his official inauguration, expected on January 15, after which his administration will formally take office. Key cabinet appointments are underway, with significant implications for U.S.-Japan relations, trade policy, and broader diplomatic strategies.

Potential Secretary of State Appointments:

William Hagerty: Former U.S. Ambassador to Japan, William Hagerty, is under consideration for Secretary of State. Appointed by Trump during his first administration, Hagerty was widely regarded as a strong advocate for U.S.-Japan relations. He currently serves as a U.S. Senator, having won a Senate seat after resigning as Ambassador. His appointment would likely signal a continued emphasis on a robust U.S.-Japan partnership.

Marco Rubio: Florida Senator Marco Rubio is also a candidate for the Secretary of State role. Rubio’s foreign policy stance has been more critical of authoritarian governments, and his selection could indicate a firmer U.S. stance on issues related to China and the Asia-Pacific region.

Implications for Japan

Strengthening U.S.-Japan Relations: Should William Hagerty be selected as Secretary of State, Japan could see enhanced diplomatic and strategic collaboration with the United States, given Hagerty’s familiarity and history with Japanese leaders.

Potential Trade Policy Changes: There is speculation that Trump may reintroduce tariffs or renegotiate trade terms with key partners. As a major trade ally of the U.S., Japan could be directly impacted by any new tariffs or adjustments to trade agreements, which may lead to economic consequences and potential diplomatic negotiations.

Recent Developments in Japanese Political Landscape and Party Dynamics

Significant changes have occurred within Japan’s Komeito and Constitutional Democratic Party (CDP), alongside shifts in parliamentary committee leadership and cabinet positions. These developments reflect evolving alliances, power distributions, and strategic adjustments in Japanese politics, particularly as parties respond to recent election results and prepare for upcoming legislative sessions.

Key Changes in Komeito Leadership

Leadership Transition:

Mr. Keichi Ishii failed to secure his parliamentary seat, (having opted to run solely as a single-member constituency candidate and not rely on proportional representation list as a backup). Thus, Ishii has resigned from his leadership position.

New Leadership Appointment:

The party has now appointed Tetsuo Saito, a 72-year-old representative from Hiroshima, as the new leader. This marks a significant change in Komeito’s leadership and potentially in its alliance with the LDP.

Implications for the LDP-Komeito Alliance:

Komeito’s internal changes and decreased electoral support have led to “soul-searching” within the party and could impact its traditionally strong alliance with the LDP. Observers anticipate this may lead to recalibrations in LDP-Komeito cooperation in legislative matters.

Constitutional Democratic Party Gains Influence

Budget Committee Chairmanship:

For the first time since 1994, an opposition party—the CDP—now holds the influential chairmanship of the Budget Committee. This position, held by Hirofumi Ryu of the CDP, grants the party significant power in setting budget agendas and scrutinizing government policies, even though it does not come with a cabinet role.

Committee Distributions in the Lower House:

Reflecting recent election outcomes, committee seats have been allocated among parties:

• LDP: 8 committees
  • CDP: 6 committees
  • Ishin-no-kai: 1 committee
  • Democratic Party for the People (DPFP): 1 committee
  • Komeito: 1 committee

Strategic Leverage for the CDP:

Holding the Budget Committee chairmanship allows the CDP to assert more influence over fiscal and economic policies, which they plan to leverage fully. This role enhances the CDP’s position as a formidable opposition force capable of shaping budgetary priorities.

Cabinet Appointments and Coalition Prospects

Recent Cabinet Replacements:

The LDP filled two cabinet vacancies left by members who lost their seats in the election. These replacements were appointed from within the LDP, preserving the party’s control over cabinet positions.

Democratic Party for the People’s Position:

There was speculation that the LDP might offer a cabinet post to the DPFP to strengthen coalition ties. However, the DPFP’s leader, Mr. Yuichiro Tamaki, has shown reluctance to formalize a coalition, preferring a flexible, issue-based partnership. Mr. Tamaki’s strategy appears focused on maintaining independence ahead of future elections. This allows the DPFP to selectively support LDP policies without binding itself to a formal alliance.

July Yen Intervention and Ministry of Finance Actions

In July, Japan’s Ministry of Finance (MoF) executed a significant intervention in the foreign exchange market to stabilize the Japanese Yen, which had weakened to a 38-year low. Details of this intervention were only recently disclosed, revealing the substantial financial commitment undertaken to bolster the Yen’s value.

Key Details of the Yen Intervention

Market Context:

In early July, the Yen had depreciated sharply, reaching levels of 160–162 Yen per US Dollar. This marked a significant decline, triggering concerns over the economic impact of a weak Yen on Japan’s import costs and inflation.

Intervention Dates and Amounts:

July 11, 2023: The MoF intervened by injecting 3.17 trillion Yen (approximately 21 billion USD) into the currency market.

July 12, 2023: A second intervention followed, amounting to roughly 2.37 trillion Yen (around 70–75% of the previous day’s intervention).

Immediate Impact:

These substantial injections helped strengthen the Yen, pulling it down from the 160 range to a more stable level, alleviating pressure on import prices and inflation.

Source of Intervention Funds

The funds for this intervention likely came from Japan’s holdings of US Treasury bonds. By selling a portion of these assets, the government was able to generate the necessary capital to support the Yen.

The July intervention underscores the MoF’s readiness to utilize foreign reserves to stabilize the Yen when necessary. This aggressive approach highlights Japan’s proactive stance in managing currency volatility, especially during periods of extreme depreciation. The disclosed intervention amounts reflect the scale of financial resources Japan is willing to deploy to maintain exchange rate stability.

Ishin-no-kai Leadership Change and Opposition Strategy

On Thursday, Mr. Nobuyuki Baba announced he would step down as party leader after Ishin-no-kai’s disappointing performance in the latest election, where their seats dropped from 43 to 38.

Ishin-no-kai’s convention will take place on December 1, during which both Mr. Baba and the Secretary General will formally resign. They will take on other roles within the party based on the new leadership’s direction post-election.

Shift in Opposition Strategy:

Ishin-no-kai is likely to adopt a new approach to strengthen its position within the opposition. Initially considered as a potential partner to the ruling Liberal Democratic Party (LDP) in the event of LDP’s weakened influence, Ishin-no-kai now faces competition from the Democratic Party for the People (DPP). Which saw a surprising surge in support, increasing its seats by 250%. Generally, outcomes reflect public dissatisfaction with the LDP.

Impact of the Scandal on the Opposition’s Role:

The ongoing scandal involving the LDP has kept the Constitutional Democratic Party (CDP) actively engaged, especially with a CDP member now chairing the powerful budget committee. This role enables the CDP to scrutinize the government closely.

The budget committee sessions, often televised, provide a platform for public accountability, where the prime minister and cabinet members respond to pointed questions. These sessions, managed by the CDP chair, are likely to feature intense questioning and public scrutiny of government actions, fostering a heightened atmosphere of political theater.

With leadership changes and a redefined strategy, Ishin-no-kai aims to strengthen its role in the opposition amid increased scrutiny of the ruling LDP. The DPP’s unexpected gains and the CDP’s control of the budget committee reinforce a climate of accountability, signaling a challenging period ahead for the ruling coalition.

Recent Geopolitical and Military Developments in East Asia

North Korean Missile Launch:

Hours before the U.S. presidential election commenced, North Korea launched seven short-range ballistic missiles. They were likely aiming to draw global attention and assert its presence. This move is consistent with North Korea’s pattern of using missile tests to maintain visibility on the international stage, emphasizing its continued security threat to the region.

South Korea-Japan Military Cooperation:

On Thursday, a South Korean frigate visited the Japanese port of Yokosuka. Japan’s Minister of Defense, Gen Nakatani, boarded the vessel. This marked the first time a Japanese defense minister has set foot on a South Korean military vessel. This unprecedented step signals strengthening ties between Japan and South Korea in addressing mutual security concerns, particularly in light of North Korean threats.

Canada-Japan Defense Collaboration:

Two weeks prior, a Canadian Coast Guard icebreaker visited Yokosuka, focusing on non-combat roles like anti-piracy, illegal fishing, and surveillance. Though non-military, this visit marked an expansion of Canadian presence in the region.

This week, further Canadian involvement was revealed, indicating Canada’s growing commitment to regional stability and supporting Japanese Self-Defense Forces. Canada is enhancing its presence in East Asia to bolster security partnerships and exert influence in response to Chinese actions in the Taiwan Strait.

Strengthening Regional Security Network:

This recent engagement is part of a broader coalition of like-minded nations working to deter potential Chinese aggression, especially concerning Taiwan.

PM Nomination and Upcoming Developments

The nomination of the Prime Minister is  a two-round process. In the first round, each party will vote for its own leader. This will likely lead to a second round where the top two contenders will be Mr. Ishiba and Mr. Noda.

In the second round, the opposition parties must decide whether to vote for Mr. Ishiba or Mr. Noda, or continue to support their party presidents. If parties like Ishin-no-kai and the Democratic Party for the People vote for their leaders, these votes will be considered invalid for the prime ministerial contest, as only Mr. Ishiba and Mr. Noda are valid candidates in the second round.

Potential Outcomes

Although improbable, a scenario exists where the Constitutional Democratic Party (CDP) candidate could emerge as prime minister if the Democratic Party for the People throws its support behind the CDP candidate. Such an outcome would necessitate forming a new cabinet and removing the existing government officials.

With limited time for the extraordinary Diet session (lasting no more than three weeks), rapid and substantial political changes remain uncertain but are possible.

Recent Cabinet Adjustments:

Following recent election losses, the Justice and Agriculture Ministers were replaced. The new appointees are:

• Justice Minister: Keisuke Suzuki
  • Agriculture Minister: Taku Etō

Seiji Kihara, a close ally of former Prime Minister Kishida, replaces Shinjiro Koizumi as the LDP’s election strategy chief. Koizumi resigned from this post, taking responsibility for the LDP’s lackluster performance. This appointment of Kihara reflects Kishida’s continued influence within the party.

Upper House Leadership Changes:

Although the recent election concerned only the lower house, changes were also made in the upper house. Masakazu Sekiguchi is now the president of the Upper House, likely in preparation for next year’s upper house elections.

The vacated Upper House caucus chairmanship role has been filled by Keizo Takemi, a prominent politician with significant influence, formerly the Minister of Health and Welfare.

The Japanese political scene remains fluid. Leadership changes and strategic party decisions poised to shape the government’s trajectory in the months ahead. The upcoming reorganization within the LDP will play a pivotal role in defining Japan’s governance approach.

Questions from the Audience Addressed Exclusively During the Briefing

• What would happen if the government cannot pass their budget and Ishiba resigns?
• Does the emperor have any role in the change of government?
• If no, then what are the constitutional mechanics of forming a government?
• What is your view on the probability of a joint Upper House and Lower House election in the summer of 2025?
• What does Trump’s victory mean for Japan?
• Based on the importance of tariffs, what effect might the Trump presidency have on the yen?
• What key priorities will Japan aim to discuss with the incoming US administration?
• Some of the committee seats have been redistributed. Do you expect that there will be much policy deviation from previous governments?
• What do you think will happen regarding Nippon Steel’s acquisition of US Steel?
• Is it possible for the government to intervene in the aforementioned acquisition?
• Ishiba has signaled his willingness to resume talks on the ‘active cyberdefense’ bill, is there any reason for this timing, particularly given the PM’s politically precarious situation?
• Does it not stand to reason that with Trump’s victory, Japan would have more room to strengthen the yen, given his suspicions of currency manipulation by foreign countries undermining US competitiveness?