Article

Japan election results: status quo maintained, securing political stability in Japan

Japan elections

With its new leader, Prime Minister (PM) Fumio Kishida, at the helm, Japan’s ruling Liberal Democratic Party (LDP) yielded a larger than expected victory in the lower house election on 30th October. While some of LDP’s high profile members, including Secretary General Akira Amari, lost a close race in a single-seat district, the LDP kept a single-party majority overall. Its ruling coalition with the Komei Party secured nearly two-thirds of the seats. 

Figure 1. Lower House Election yields victory for ruling parties

Source: NHK as at 1 November 2021.

The election result shows that PM Kishida and LDP won the public mandate to implement measures that seek to combat the spread of Covid-19 and steer the battered economy out of the pandemic, and this includes rolling out a near-term stimulus package worth several tens of trillions of yen.

In the longer term, PM Kishida has promised a ‘new capitalism’ designed to narrow the income gap and redistribute wealth across the country by boosting wages through tax incentives for companies, as well as pay hikes for nurses and care workers. However, he has already backtracked on a proposal to raise capital gains tax that spooked investors earlier in October and led to a sell-off in Japanese equities.

Meanwhile, digitalization and carbon neutrality remain key political agendas in Japan. The market appears to welcome this political continuity and stability, with Japanese equity indices rising on 1 November - the first business day following the general election.

Things could have been a lot more challenging for PM Kishida and the LDP. This year saw the Constitutional Democratic Party of Japan (CDPJ) form an unusual alliance that unified some of the country’s long-fragmented opposition parties. Together, they sought to leverage voter frustration that had been building up under the LDP’s tenure since 2012, and criticized former Prime Minister Abe’s pro-growth policy (also known as ‘Abenomics’). They also proposed income redistribution via a range of measures, such as raising income tax for rich individuals and introducing progressive tax rates on corporate earnings.

To tip the scale further to their advantage, the CDPJ-led opposition nominated a single candidate in over 70% of the first-past-the-post constituencies. However, these attempts by what many viewed as ‘socialists’ failed to gain the confidence of electorate, given the current backdrop of economic and foreign policy challenges.

The aftermath saw the CDPJ lose seats, down from 110 to 96. However, the Japan Innovation Party (ISHIN), an Osaka-based central right opposition that wasn't part of the alliance, emerged as the dark horse and nearly quadrupled its seats from 11 to 41.

PM Kishida is now set to make his debut on the world stage at the COP26 climate summit in Glasgow, and expected to call a special parliamentary session on 10th November to confirm he will remain prime minister. The market’s positive reaction to the election results reflected our own, as we, too, broadly welcome this smooth political transition.

In our view, the combination of political stability, Japan’s high vaccination rate and the sharp decline of Covid-19 cases should stimulate domestic economic activity and ease the skepticism foreign investors may feel towards the country. We believe the cloud over Japan should now begin to disperse.

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 1 November 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.