(Bloomberg) -- Japan’s new prime minister will either be Sanae Takaichi or Shigeru Ishiba after a Liberal Democratic Party leadership contest Friday winnowed down a field of nine candidates to force a run-off election that will take place shortly.
If Takaichi prevails, Japan will get its first female premier. As she’s a staunch conservative, tensions with China may mount, and the Bank of Japan may face pressure to slow the pace of policy normalization. A victory by Ishiba would point to closer ties with Asian neighbors and support for the nation’s regional economies.
Both run-off candidates have pledged to quickly put together a package of economic stimulus measures. Bond yields fell and the yen weakened a tad after news of the run-off.
A record nine candidates contested the LDP’s election after outgoing Prime Minister Fumio Kishida said last month he wouldn’t seek a second term. Kishida’s approval ratings had sagged due to a party slush-fund scandal and persistent inflation. Whoever wins the run-off is all but certain to be approved as prime minister by parliament in a vote expected on Oct. 1.
The election sets the stage for a new premier who will need to steer the nation through a period of transformation as it emerges from three decades of stagnation and faces mounting diplomatic and security challenges.
Ishiba, a 67-year-old party veteran who has served in several senior roles including defense minister, has called for an Asian NATO to deter China and North Korea. He wants to focus on revitalizing Japan’s rural regions by providing incentives for young people raised in provincial areas to stay there rather than relocate to major cities.
Takaichi, 63, would become Japan’s first female premier after a century of male leaders, marking a historic step in a nation often criticized for being behind the curve on gender equality.
Her victory would mark an abrupt economic policy shift from the administration of Kishida. She has pledged to avoid raising taxes even as she seeks a big fiscal stimulus package. She has also weighed in on monetary policy, saying a rate hike now would be “stupid.”
Signs of a resurgence in the world’s fourth-largest economy have reignited enthusiasm for Japan as a global investment destination. Wages and prices have returned to growth, the stock market is revisiting levels not seen since the 1980s, and the central bank has wound down its unorthodox monetary stimulus program.
But the new prime minister will also face persistent deep structural problems, not least an aging and shrinking population, stubbornly low levels of productivity and economic polarization. Growing military threats from China, Russia and North Korea will also demand the new leader’s attention.
With a national election due sometime in the next year — but expected as early as next month — the candidates had sought to appeal to the public with proposals to boost incomes and accelerate growth.
Among the other pressing issues for the new leader will be the need to strike up a cooperative relationship with the US and whoever succeeds President Joe Biden in the November presidential election. The US is Japan’s only security treaty ally and has its largest permanent foreign military presence in Japan, with around 55,000 troops.
All of the candidates emphasized a consolidation of the US alliance, but relations have been put under strain by Biden’s assertion that he would block an attempt by Nippon Steel Corp. to buy United States Steel Corp. Takaichi is among the candidates who have said that domestic political concerns in the US during an election year may be affecting the Nippon Steel bid.
Fraying ties with China emerged as a key theme late in the LDP election campaign period after the fatal stabbing earlier this month of a Japanese schoolboy in China. All of the candidates called for a full investigation and demanded steps to protect Japanese citizens.
Tensions have also been inflamed after Chinese military aircraft made an unauthorized entry into Japanese airspace for the first time last month. And this week Japan reportedly sent a warship through the Taiwan Strait for the first time, a move all but certain to anger Beijing.
During speeches and debates in the campaign period, policy differences between the candidates were often hard to distinguish. But a clear divide has emerged on the issue of whether to allow married couples to keep separate surnames, a question that has become a litmus test for how far candidates may be willing to accept a more diverse Japan. Ishiba supports a change, while Takaichi doesn’t.
Despite the array of internal and external challenges for Japan, one of the dominant themes of the campaign has been party reform following revelations of secret payments to lawmakers who were part of groups known as factions. The dismantling of most factions has created one of the most competitive races for party leadership in decades.
--With assistance from Hidenori Yamanaka.
(Updates with results of initial round of voting)
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