Voters spurn PM Ishiba LDP over inflation scandals

Japan's ruling coalition is certain to lose its parliamentary majority as a result of Sunday's national election, public broadcaster NHK reported, raising uncertainty over the make-up of the next government and the prospects for the world's fourth-largest economy. With 90% of the seats accounted for, Prime Minister Shigeru Ishiba's Liberal Democratic Party (LDP), which has ruled Japan for almost all of its post-war history, and junior coalition partner Komeito had 192 of the 465 seats in the lower house of parliament, NHK said. It would be its worst election result since the coalition briefly lost power in 2009. “This election has been very tough for us,” a sombre-looking Ishiba told TV Tokyo earlier in the evening. The biggest winner of the night, the main opposition Constitutional Democratic Party of Japan (CDPJ), had 135 seats so far, a jump from the previously held 98, as voters punished Ishiba's party over a funding scandal and inflation.

The outcome may force parties into fractious power-sharing deals to rule, potentially ushering in political instability as the country faces economic headwinds and a tense security situation in East Asia. The election also took place nine days before voters in the United States — Japan's closest ally — head to the polls in another unpredictable ballot. Ishiba said he would wait until the final results, likely due in the early hours of Monday, before considering potential coalitions or other power-sharing deals. The prime minister had called the snap poll immediately after being elected to head the party last month, hoping to win a public mandate for his premiership. His predecessor, Fumio Kishida, quit after his support fell due to anger over a cost of living crunch and the scandal involving unrecorded donations to lawmakers.

The LDP has held an outright majority since it returned to power in 2012 after a brief spell of opposition rule. It also lost power briefly in 1993, when a coalition of seven opposition parties formed a government that lasted less than a year. Japanese stocks and the yen are expected to fall while longer-dated government bond yields are seen rising as investors react to the uncertainty. "The voters' judgement on the ruling bloc was harsher than expected," said Saisuke Sakai, senior economist at Mizuho Research and Technologies. "Uncertainty over the administration's continuity has increased, and the stock market is likely to react tomorrow with a sell-off, especially among foreign investors."

The exit polls suggest smaller parties, such as the Democratic Party for the People (DPP) or the Japan Innovation Party, could prove key to forming a government. The DPP had 22 seats so far and the Japan Innovation Party 33 seats, according to NHK. But both propose policies at odds with the LDP line. DPP chief Yuichiro Tamaki has not ruled out some cooperation with the LDP-led coalition, but Innovation Party head Nobuyuki Baba has rejected the idea. The DPP calls for halving Japan's 10% sales tax until real wages rise, a policy not endorsed by the LDP, while the Innovation Party has pledged tougher donation rules to clean up politics.

"The DPP is focused on ultimately making the country better and ensuring financial resources are allocated more appropriately, so that's why I decided to vote for them," Keisuke Yoshitomi, a 39-year-old office worker, said after casting his vote at a polling station in Tokyo. The Innovation Party opposes further increases in interest rates, and the DPP leader has said the Bank of Japan may have been hasty in raising rates, while the central bank wants to gradually wean the Japan off decades of massive monetary stimulus. Political wrangling could roil markets and be a headache for the Bank of Japan if Ishiba chooses a partner that favours maintaining near-zero interest rates when the central bank wants to gradually raise them.

Japanese shares fell 2.7% last week on the benchmark Nikkei index after opinion polls first indicated the ruling coalition could lose its majority. "With a more fluid political landscape, pushing through economic policies that include raising taxes, such as to fund defence spending, will become much harder," said Masafumi Fujihara, associate professor of politics at Yamanashi University.

Reuters