Japan braces for closest vote in years as LDP fights to stay in power – BNN Bloomberg

(Bloomberg) — Japan looks set for one of the closest national elections in years as voters go to the polls on Sunday to decide whether to keep the scandal-tainted Liberal Democratic Party in power.

Forecasts by Japanese media outlets suggest the LDP will win the most votes, but may lose its overall majority in the lower house of parliament and possibly even control of the government with its coalition partner Komeito. In the latter scenario, the LDP can still cling to power with the help of other friendly lawmakers or by bringing another party into the coalition.

A change of government is a more distant possibility, according to forecasts, but almost any plausible outcome will result in a weakened administration, leaving Prime Minister Shigeru Ishiba less than a month after becoming national leader.

At the heart of voter discontent with the ruling party are revelations last year that LDP lawmakers were lining their pockets by hiding income generated at fundraising events. While dozens of LDP politicians have been punished by the LDP and many powerful groups within the party have disbanded, opinion polls indicate that many voters feel the response has been insufficient.

Adding to voter angst is the strongest inflation in decades, a factor that has squeezed household spending power despite rising wage growth.

A bruise at the polls would likely make it harder for Ishiba to pursue his policy goals, including increasing funding for regional growth and raising taxes to pay for increased defense spending. A failure could force Ishiba to take more populist steps, such as more welfare spending or even tax cuts.

Ishiba has already pledged to make the next economic stimulus package bigger than last year’s, which was financed by an additional 13 trillion yen ($86 billion) budget, which requires issuing more government debt.

The yen and Japanese shares could come under pressure from the emergence of a more fragile LDP-led government after the election, strategists say, while party opponents of the Bank of Japan’s rate hike could be encouraged to speak out.

“If Ishiba is weakened, it could be significant given that there are some strong views within the LDP on BOJ policy, such as Sanae Takaichi’s,” said Jeff Young, founder of consultancy DeepMacro in New York, who worked as a Japan economist at Salomon Brothers in the 1990s.

Takaichi narrowly lost to Ishiba in last month’s party leadership election after campaigning on a platform of fiscal and monetary stimulus. During the campaign, she said it was “stupid” for the BOJ to raise interest rates.

The election pits Ishiba’s PDL against a fractured collection of opposition parties, the largest of which is the Constitutional Democratic Party led by former prime minister Yoshihiko Noda. The CDP is largely aligned with the LDP on Japan’s security alliance with the US, as well as the need to ease the cost-of-living crisis and push wage growth above inflation.

The CDP could benefit from a protest vote over the ruling party’s slush fund scandal and gain support from progressives with strong views on issues such as the right to use separate surnames after marriage. These themes seem to have resonated more with the electorate than the CDP’s goal of reducing the central bank’s inflation target to “above zero” from 2%.

The LDP-Komeito coalition had a comfortable majority of 279 of the 465 seats in parliament going into the election, but voter anger over the funding scandal is expected to lead to deep seat cuts. Ishiba has set his sights on reaching the minimum 233 seats needed to retain control of the lower house, the more powerful of the two houses of parliament, with the Komeito.

Recent opinion polls suggest the coalition may fall short of that target for the first time since it lost power in lower house elections in 2009. If that happens, Ishiba could turn to the support of LDP lawmakers who he was forbidden to represent the party. in the election because of their role in the scandal that undermined public support.

Of the 12 PDL members who were deprived of official support in the elections by Ishiba, 10 are independent candidates. The lawmakers include former trade minister Koichi Hagiuda and former education minister Hakubun Shimomura, both of whom were influential within the party before news of the slush funds emerged last year. Media forecasts suggest that a handful of candidates will win seats in the election.

Ishiba may also need to try to bring another party into the coalition if he still falls short of a majority. Before the election, the centrist opposition parties said they might cooperate with the PLDM on some policy issues, but none indicated they would be willing to join the coalition.

Most forecasts predict that the LDP will still be the largest party in parliament after the election, making it unlikely that Noda’s CDP will be able to take control of the government by building a coalition of its own. The CDP is the successor to the party that ruled Japan from 2009 to 2012, when the LDP was last out of power.

–With assistance from Yoshiaki Nohara, Takaaki Iwabu and Isabel Reynolds.