In the weekend’s Lower House election, the LDP won 191 seats and Komeito won 24 seats, totaling 215 seats.
Even if we add the four independents, Hirasawa, Hagiuda, Nishimura, and (though unlikely to return immediately) Seko, it only amounts to 219 seats, falling short of the majority (233 seats).
However, the Constitutional Democratic Party (CDP) also falls significantly short of the LDP with 148 seats (despite increasing by 50 seats).
Even with the Japanese Communist Party (8 seats), Reiwa Shinsengumi (9 seats), Social Democratic Party (1 seat), and Matsubara’s seat, they only total 167 seats.
Meanwhile, since the CDP has advocated for “a change of government as the greatest political reform,” a grand coalition with the LDP is unlikely (unless they can secure the prime minister position).
As a result, the Democratic Party for the People (DPP, which quadrupled to 28 seats) and Ishin (Japan Innovation Party, 38 seats) — both distancing themselves from the CDP — will play pivotal roles.
The most desirable outcome for the LDP would be to expand the coalition to include the DPP. However, since the DPP now holds more seats than Komeito and can independently propose bills in the Lower House, negotiations will not be easy unless the ruling coalition makes concessions.
DPP leader Tamaki has repeatedly denied joining the coalition but has also expressed willingness to “cooperate where we can to realize our policies.” They’re likely to start with external cooperation.
A special session of the Diet to nominate the prime minister must be convened within 30 days of the election, with November 7 being the likely date.
Even if a majority is not achieved in the first round, a runoff between the top two candidates will be held. If the DPP and Ishin abstain from voting in the prime minister nomination election, it is likely that the LDP candidate will win.
Within the LDP, Election Strategy Chairman Koizumi has resigned to take responsibility.
While attention is on Prime Minister Ishiba’s fate, he is likely to remain in office for now, as the defeat was not severe enough to make governance impossible, and many supporters of his potential rival, Takaichi, lost their seats.
Furthermore, the truly important event is next July’s Upper House election.
Upper House Sign
Since the term of the Upper House is fixed at six years, a defeat would lead to a “twisted Diet” and prolonged political paralysis.
Upper House Member Badge
Considering this timing, there is little reason to change the prime minister now.
However, the prime ministerial nomination will occur right after the U.S. presidential election on November 5 (results expected on November 6 Japan time), which could have some influence.
Following the general election results, the USD/JPY has already started at the 153 yen level.
Foreign investors were watching to see if any changes would occur in Japan, including the possibility of Tamaki becoming prime minister in an LDP-Komeito-DPP coalition.
Prime Minister Ishiba has already lost trust due to his inconsistent statements since taking office.
If the view that Ishiba will remain in office strengthens, “Sell Japan” movements will likely intensify due to disappointment.
This week, the BOJ’s Monetary Policy Meeting is on Thursday, but no policy changes are expected, and Governor Ueda is unlikely to provide a clear message on additional rate hikes.
On Friday, the U.S. October employment report will be released, but interpretation may be complicated due to the impact of hurricanes and Boeing strikes.
Therefore, the main themes for the market will likely be Japan’s political developments following the general election and the outlook for the U.S. presidential election on November 5.
