Japan Elections and Market Update

On September 3, 2021, Prime Minister Yoshihide Suga announced his decision to not run in the upcoming ruling Liberal Democratic Party leadership race later this month. Portfolio Manager Shuntaro Takeuchi provides his thoughts on the current political environment and outlook for Japanese equities.

Why did Prime Minister Suga decide not to run?

Prime Minister Suga has faced severe criticism for his handling of the COVID-19 pandemic. While he succeeded in negotiating and securing vaccines for Japan and the current vaccination rate is a respectable one million shots a day, the country is still under a state of emergency and Prime Minister Suga’s most recent August approval rating sank to below 30%. Another blow to Prime Minister Suga was the Yokohama mayoral election win of opposition-backed Takeharu Yamanaka, who defeated a ruling Liberal Democratic Party candidate in August. Yokohama is the capital of Kanagawa prefecture—home to the constituency of Suga's seat in the House of Representatives.

What is next in Japan’s political calendar?

There will be two elections. On September 29, 2021, an internal election within the current ruling Liberal Democratic Party (LDP) will be held to select LDP leadership. The winner of the LDP leadership race is expected to replace Suga as prime minister given the LDP's majority in parliament. The next election will be the general election of members of the lower house of parliament, which is expected to be sometime in November. The terms of the current members of the lower house run until October 21. However, Prime Ministers reserve the right to dissolve the lower house and can call for a snap election. So the new Prime Minister to replace Suga can let the lower house carry out the full term or call for a snap election.

Do you expect the election of the new prime minister to be handled fairly smoothly and quickly? Who are the front runners?

The sudden decision by Prime Minister Suga to step aside has shaken up this month’s leadership race, but we expect it to be handled quickly. We think there are three front runner candidates: former Foreign Minister Fumio Kishida who was previously considered an heir to Prime Minister Shinzo Abe and came in second in the LDP leadership vote last year, following Abe’s resignation; Abe’s former Internal Affairs Minister Sanae Takaichi, who if elected, would become Japan’s first female Prime Minister; and Japan’s vaccination program leader Taro Kono, who appears to be in the lead based on early polls.