(Bloomberg) -- Japanese Prime Minister Shigeru Ishiba promised Monday to restore political stability in a bid to maintain power, after his ruling coalition failed to win a majority in the lower house for the first time since 2009.
“We have to humbly listen to the voices of criticism,” Ishiba, who took the job only four weeks ago after winning a leadership vote in his Liberal Democratic Party, said at a press briefing in Tokyo. “I want to take responsibility by protecting people’s daily lives, and protecting Japan.”
Ishiba’s comments indicate he intends to continue on as prime minister and seek to form an administration even after his gamble on an early election failed. While the LDP still won the most votes in the election, his ruling coalition dropped 78 seats, falling short of the 233 needed for a majority.
The yen fell as much as 1% after the result, and has now given up all its gains since the Bank of Japan increased interest rates in late July, raising the risk that authorities may wade back into the market to protect the currency as the political uncertainty clouds the rate trajectory. Stocks climbed Monday, in part due to anticipation that a weaker government may unleash more spending to boost the economy.
“The LDP suffered a crushing defeat,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who sees a December rate hike as the main scenario.
“There is still time until December, but the difficulty is that the BOJ has said that it will not raise interest rates while the markets are in turmoil,” he added. “The impact of the US presidential election also remains to be seen, and so the uncertainty in the markets is increasing.”
What Bloomberg Economics Says...
“It’s tough to draw policy implications at this early stage. Still, two appear likely. First, Ishiba is likely to face pressure to ramp up fiscal support for households struggling with rising costs of living, given policy stances of opposition parties he may approach. Second, the Bank of Japan could face pressure to refrain from raising borrowing costs further this year.”
— Taro Kimura, economist
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The LDP is facing a similar situation to the lower house election in 1993, when it lost its majority but remained the largest party in parliament. After weeks of negotiations, seven opposition parties formed a coalition and pushed the LDP out of power for the first time since 1955. The coalition crumbled in less than a year and the LDP returned to government.
A special session of parliament must be held within 30 days of a general election to choose a prime minister, according to Japan’s constitution. If nobody gets a majority, a runoff is held between the top two candidates, with the winner taking the top job. The upper house of parliament, currently controlled by the LDP-led coalition, separately picks a prime minister, but the lower house’s decision takes precedence if the two bodies choose different people.
Ishiba said he wasn’t considering expanding the ruling coalition, but said he had signed a policy agreement with existing partner Komeito following the result. There is rising speculation that the LDP will seek to partner with either the Democratic Party for the People, which secured 28 seats, or the Japan Innovation Party, which won 38 seats.
The leaders of both parties have dismissed the idea of joining the ruling coalition, but DPP head Yuichiro Tamaki has shown a willingness to work with the LDP on individual issues. Tamaki said Monday that he’ll keep seeking a tax rule change that would benefit lower income workers, adding that there could be various ways the party could respond to the premiership vote in parliament.
“There are parties that have greatly increased their parliamentary seats,” Ishiba said. “We have to look at what kind of arguments these parties made during the election and what resonated with the public,” he added.
The biggest gains went to the main opposition Constitutional Democratic Party of Japan, which significantly boosted its seat count from 98 before the vote. CDP leader Yoshihiko Noda said he would seek to take over the government if the coalition loses its majority.
“If we’re in an environment where we can fight for it, of course we should go for Japan’s leadership,” Noda said. “I’ve said that a change in government is the greatest political reform, and I want to pursue it.”
Ishiba said he would analyze the reasons behind the loss of the majority in the election, while acknowledging that voters are deeply dissatisfied with his party’s handling of a slush fund scandal.
“I believe the primary reason for this outcome is that the doubts, suspicions and anger regarding politics and money have not been dispelled,” he said, vowing to hold talks over political reforms with other parties.
He also said his government needs to implement a meaningful economic package and put together an additional budget as soon as possible, incorporating measures from other parties if they’re popular with the public.
The package will include actions to address rising energy and food prices, as well as support for small and medium-sized companies to hike salaries and adopt labor-saving technologies, he said. Ishiba previously indicated that he’s looking for measures that exceed the size of last year’s package, which was funded by a ¥13 trillion ($84.7 billion) extra budget.
“The LDP is in a very difficult situation as it looks to the upper house election next year,” said Mieko Nakabayashi, a professor at Waseda University in Tokyo and a former lawmaker, referring to the next general election the ruling party will face. “It’s possible that they’re in such a difficult spot they may just leave things to Ishiba for now.”
After the election on Sunday, campaign chief Shinjiro Koizumi resigned from his position to take responsibility for the results, and two other cabinet ministers lost their seats. Ishiba said he needs to appoint their replacements as soon as possible, emphasizing that “not a moment’s delay in domestic politics can be tolerated.”
“I have my doubts about whether the Ishiba administration will last that long,” said Taro Saito, head of economic research at NLI Research Institute. “Many in the LDP think that it’ll be difficult to win the next election with Ishiba at the helm. There’ll be voices trying to kick him out, not for his economic policy etc., but as an election strategy.”
--With assistance from Shadab Nazmi and Yoshiaki Nohara.
(Updates throughout)
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