Japan election: is status quo a bad thing?

Japan elections
Key takeaways
Former foreign minister Fumio Kishida won the LDP leadership race and will become Japan’s new PM
His pro-growth manifesto promised massive economic support to reboot the economy post-Covid
We believe the election result is good news for Japan’s recovery

On 29 September 2021, Fumio Kishida, a former foreign minister, won Japan’s ruling Liberal Democratic Party’s (LDP) leadership race. He’s now set to become Prime Minister (PM), at an extraordinary session of Parliament on 4th October – something he’s had in his sights for a long time. For many, this result very much follows the status quo. The LDP preferred the low-key Kishida to his outspoken, reform-minded counterpart Taro Kono who led in the opinion polls.

Kishida’s manifesto pledged tens of trillions in Japanese yen in supplementary budget to immediately help reboot the economy and committed to ongoing Covid measures. It’s this that likely helped him to take the win – as many see this as the key to Japan’s post-pandemic recovery.

Not only that, but in the second round of voting, Kishida gained the support of Sanae Takaichi, another leadership candidate who garnered a larger-than-expected portion of the vote in the first round. Takaichi, a proponent of Abenomics (aggressive monetary and fiscal stimulus) looks likely to become a cabinet member, so pro-growth economic policies are secure for the time being.

The resignation of the less-than-popular Prime Minister Yoshihide Suga, coupled with the successful implementation of electoral process to vote in a new leader, has paved the way for the LDP to win a majority in this autumn’s Lower House Election. The immediate future for Japan is looking much more stable.

The significant increase in vaccine uptake and decline in new cases meant that the government were finally able to remove the “state of emergency”. This set in motion a one-month transition period starting on 30th September. With the new leadership in place, the goal will be to move forward with reopening the economy and learning to live with Covid.

Figure 1. Share of total population that has received at least one dose of the COVID-19 vaccine

Source: Our World in Data. As at 28 September 2021

Figure 2. New cases per million (7 days moving average)

Source: Our World in Data. As at 28 September 2021

Despite the cabinet’s fall in popularity, support for the LDP party has remained high while support for opposition parties hasn’t really risen either. The eventual reopening of the economy, and pro-growth fiscal policies, could therefore help the LDP strengthen its political position. 

From a structural perspective, Kishida backs income redistribution, which we believe is valid policy. Since Abenomics kicked off in 2013, corporate earnings have increased, and Japan’s GDP growth has resumed. In contrast, the proportion of income shared with the workforce at large enterprises has been declining.

If Kishida can incentivise companies to share income with their employees and improve productivity at the same time, these healthy wage rises should also help Japan sustain long-term economic growth.

Much-needed digital transformation and corporate governance reform are also part of his agenda and so we expect them to continue.

Broadly speaking, we’ve welcomed this smooth political transition, which has come mid-pandemic and believe it should be positive for Japan’s recovery.

Related articles

success failure

Keep up-to-date

Sign up to receive the latest insights from Invesco’s global team of experts and details about on demand and upcoming online events. 

Keep up-to-date

When you interact with us, we may collect information about you which constitutes personal data under applicable laws and regulations. Our privacy notice explains how we use and protect your personal data.

If your interests change, you can update your preferences at any time.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Like what you see?
Hear first about events and get insights from our global network of investment and policy experts
Sign Up

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

  • All data is as at 30th September 2021 unless otherwise stated.

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.