Shinzo Abe gambles on early election
On 25 September, Japan’s Prime Minister Shinzo Abe called for a snap election, which will be held on 22 October 2017. Abe called for a snap election, nearly a year earlier than the scheduled election, in an attempt to strengthen his party’s presence in the parliament. If the Abe-led coalition manages to retain simple majority, he could become the longest-serving leader in the nation’s history, keeping him in office until 2020.
Abe’s approval rating dropped significantly earlier this year, as allegations of cronyism threatened his grip on power. However, support for the Abe government improved in recent months, mostly because of the government’s tough stance towards Japan’s notorious neighbour North Korea. Abe took a calculated risk by calling an early snap election, as he aims to take full advantage of the disarray in the opposition camp. The Democratic Party, the closest competitor of the ruling Liberal Democratic Party (LDP), is facing several problems such as internal infighting, weak leadership and a shortage of strong parliamentary candidates. Abe’s decision to call the snap election is well-timed to exploit a weak opposition.
Threat of new entrant
Although Abe’s LDP party is most likely to come out of the election unscathed, the outcome may turn sour for the ruling party due to Yuriko Koike, the charismatic governor of Tokyo. Hours before Abe’s announcement of the snap election, Tokyo governor Koike declared that she had formed a new party, Kibo no To (Party of Hope), to offer a credible alternative to LDP. Many defectors from the ruling LDP and opposition party joined hands with Koike’s upstart party. Koike, an LDP veteran, had quit the ruling LDP (in June 2017) and established her own political party Tomin First no Kai (Tokyoites First), which went on to register a sweeping victory in the Tokyo assembly elections held in July 2017. With Party of Hope, she is attempting to replicate her earlier success on the national stage.
Trading Japan’s snap election
Although Koike’s surprise entry into the fray dented LDP’s hopes of an easy win, a magical performance from her newly formed party seems very unlikely, considering the tight election schedule. While ‘Abenomics’ failed to achieve its target of overcoming deflation, the Japanese economy witnessed six straight quarters of growth, the longest streak in over a decade. Abe’s economic record could help him garner some much-needed support.
Stock markets more often than not tend to react positively to snap-election announcements, as such elections are usually aimed at achieving political stability by strengthening the mandate for the government. However, with the memories of the UK’s June snap election (which resulted in a fractured mandate for Theresa May-led Conservative Party) still fresh, investors should be cautious with their wager ahead of the impending snap election in Japan. Even though many political pundits expect the ruling LDP, along with its coalition partner Komei Party, to retain the majority in the parliament, investors should never underestimate the universe’s capacity to throw surprises.