As the war in Ukraine and the post-pandemic return of consumer demand fuel resource shortages and global price spikes, trouble could be in store for Fumio Kishida as he seeks to build on a positive start to his time as prime minister with a convincing victory in the July 10 Upper House election.
Since the start of Russia’s Feb. 24 invasion of Ukraine, a rapidly weakening yen combined with a precipitous rise in consumer prices are expected to add what some economists estimate to be an additional ¥60,000 ($458) to the average Japanese household’s annual expenses. There are now higher price tags on over 10,000 different products, while the nation’s currency tumbled on Wednesday to a 24-year low of ¥136.71 to the dollar.
Despite these mounting economic issues, the latest pre-election polls project Kishida's ruling Liberal Democratic Party will secure over 60 of the 124 seats up for grabs — three times as many as their closest competitor — suggesting that a convincing Upper House victory for the party is all but assured.
However, there are divisions within the LDP — most notably between Kishida’s own dovish faction and the hawkish grouping of former Prime Minister Shinzo Abe over defense spending.
The prevailing view is that Kishida must either retain or add to the 57 seats secured by the LDP-Komeito coalition during the 2019 election — the last under Abe’s leadership — in order to definitively quell those dissenting voices and push forward with his own policy directives unchallenged.
Until recent weeks, the achievement of such a result appeared to be a given. The Kishida Cabinet has enjoyed consistently high levels of support throughout the prime minister’s first nine months at the helm, with the party unofficially targeting an increase of as much as eight seats in next month’s election.
The Cabinet’s current approval rating of 48.7% is, however, a 2.1 percentage point dip from last month and the first time in four months that the figure has fallen below 50%. While still a relatively robust approval rating for a Japanese prime minister at this stage of their tenure, the decrease may nonetheless reflect dissatisfaction among voters over rising prices at an awkward time for Kishida.
“The LDP still looks on course to do well in the July election, notwithstanding a bit more likely slippage in the polls,” said Robert Ward, a Japan expert at the International Institute for Strategic Studies think tank. But “this is happening everywhere. The difference, of course, with other countries is that the Bank of Japan is not tightening policy.”
For now, rising prices beyond food and energy have been contained, Ward added, hence the BOJ’s reluctance to attempt to remedy rising inflation by increasing the interest rate, as seen in other advanced economies such as the U.S. and the U.K.
Japan’s current ultraloose economic policy is guided largely by Abenomics. The former prime minister’s flagship fiscal program aims to rid the country of its post-bubble deflationary mindset of high saving and low spending, in part through the preservation of rock-bottom interest rates.
The desired effect — so-called good inflation, where high prices and profits induce companies to pay their workers higher wages, thereby kick-starting spending and the general growth of the economy — is a long-term goal of Abenomics and a path that BOJ Gov. Haruhiko Kuroda is reluctant to deviate from.
But the approach has been further complicated by wages that have remained stagnant for the past quarter of a century, despite growing profits for major companies, including record highs for Japan’s largest trading houses in fiscal 2021.
And the sudden rise in consumer prices highlights the difficulties many families already experience in making ends meet.
Until the yen rights itself and prices and wages eventually balance out, as the BOJ has forecast, a reported 99% of families are expected to experience some form of financial hardship. This was something Kenta Izumi, leader of the main opposition Constitutional Democratic Party of Japan (CDP), was keen to emphasize during his speech to mark the start of election campaigning on Wednesday.
“When it comes to 'Kishida inflation,' the LDP won’t change. The Bank of Japan won’t change. They keep telling us that a weakened yen is a positive for Japan. But we must raise our voices in defiance and insist that a weak yen and high prices can only be a negative for the people of our country,” Izumi said.
While perhaps unlikely to lead to an increase in support for Izumi’s own party — which is currently polling at 7% of the projected proportional representation vote share, compared to the LDP’s 27% — the sentiment could resonate with an electorate not entirely sold on the LDP’s attempts to focus attention on costly defense and diplomacy issues.
There is a danger that this focus could alienate voters feeling the negative effects of economic issues that hit closer to home. The latest opinion polling suggests that voters themselves would overwhelmingly prefer that candidates focus on economic issues over diplomacy and security in the run-up to the election.
In a positive for Kishida, it is nevertheless unlikely that the opposition will be able to capitalize even if the LDP’s election priorities prove to have been a miscalculation.
“Various prices are currently on the rise, but this hasn’t yet affected the country’s economy as a whole and, given there isn’t much time left before the election, the issue is likely to have little impact,” said Takuma Ohamazaki, president of election-consulting firm J.A.G Japan.
“Generally, financial issues could be an attack point for the opposition, as they pose an effective way to appeal to low-income and struggling families,” Ohamazaki added. “Both the CDP, with support among elderly voters, and Nippon Ishin no Kai (Japan Innovation Party), who boast growing support among the younger generation, could potentially pick up votes in this way.”
However, opposition fiscal initiatives such as the CDP pledge to temporarily lower the consumption tax from 10% to 5%, Ohamazaki continued, are “unrealistic” and unlikely to lead to gains at the expense of the LDP.
Should Kishida manage to fend off opposition challenges and improve the LDP’s vote share in next month’s election, the improved intraparty mandate would then hand him the authority to pursue his "new capitalism" fiscal initiatives — which, in principal, aim to address growing societal inequalities exacerbated by the recent rise in consumer prices.
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