Japan’s LDP Leadership Race Kicks Off With Five Contenders
Sanae Takaichi
(Bloomberg) — Japan’s ruling party leadership race formally kicked off Monday under close market scrutiny, with the outcome likely to determine who will lead the nation following Prime Minister Shigeru Ishiba’s decision to step down.
The winner will face the urgent task of rebranding the party to stop a drift of supporters to rival populist parties that have stripped the LDP of its majorities in both chambers of parliament in recent elections.
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The victor is expected to become prime minister through a parliamentary vote, tasked with steering Japan through mounting challenges, including persistent inflation, an increasingly tense regional security environment and relations with US President Donald Trump.
Among the five leadership hopefuls, most local media polls suggest that pro-stimulus, conservative Sanae Takaichi and reform-minded younger politician Shinjiro Koizumi are the front-runners.
Sanae TakaichiPhotographer: Kiyoshi Ota/Bloomberg
Investors are largely viewing Takaichi as a leader who would ramp up fiscal support for the economy and slow down the Bank of Japan’s interest rate hikes, while Koizumi would take a more fiscally cautious view while leaving the central bank to press ahead with normalization.
The other three candidates are Chief Cabinet Secretary Yoshimasa Hayashi, the closest to a continuity candidate from Ishiba, former Economic Security Minister Takayuki Kobayashi, a younger conservative alternative to Takaichi, and ex-party policy chief Toshimitsu Motegi, who has touted the negotiation prowess he displayed during Trump’s first administration.
All candidates are largely aligned on the importance of the alliance with the US, while Takaichi is seen as more cautious in her views on China, with Hayashi seen as the most pro-Beijing.
While Ishiba concluded a trade deal with the US and waited until Trump had signed an executive order to lower auto tariffs before stepping down, some details still need ironing out, including a $550 billion investment plan pledged by Japan. The new leader is also expected to face US pressure going ahead on defense spending and the cost of hosting US troops in Japan.
The five candidates are due to deliver opening remarks at LDP headquarters from 1 p.m., officially launching their campaigns for the party’s Oct. 4 presidential election.
The vote will be held in a “full-scale” format, with the party’s 295 parliamentary lawmakers each casting one ballot, while another 295 votes will be distributed among the broader membership base, which totals 916,000, according to the latest LDP figures.
In last year’s leadership race, Ishiba and Takaichi won over 200,000 votes each from local members. Together with Koizumi, who won more than 100,000 votes from members, they were far ahead of the other six candidates.
All five contenders are returning from last year’s race and appear to have adjusted their strategies to adopt a more moderate tone this time. If they maintain this softer stance, turbulence in bond and currency markets may be more limited than first feared when the leadership race was called.
A poll by the Asahi newspaper over the weekend showed a divergence between the general public and LDP supporters. Takaichi was the top choice among the general public, with a 28% to 24% lead over Koizumi, while she trailed him, 24% to 41% among LDP supporters. Hayashi came in third in both groups, around the 10% mark.
Takaichi, known for advocating stimulus measures and easy monetary policy, notably avoided monetary policy references during a 90-minute press conference on Friday. Instead, she pledged more pragmatic tax relief and direct cash payments, proposals that may have less market impact. The possibility of a Takaichi win has fueled concerns about Japan’s already strained public finances, pushing bond yields higher and the yen weaker in recent weeks.
Koizumi, son of former LDP Prime Minister Junichiro Koizumi, lost early momentum in last year’s campaign after hinting at labor market reforms. This time around he is aligning his campaign much closer to the existing policy direction under Ishiba, with Finance Minister Katsunobu Kato helping run his campaign, a factor that may help compensate for his relatively limited political experience. The 44-year-old pledged fresh economic measures to counter inflation on Saturday and said he would look to finance them with surplus tax revenue.
Having lost control of both legislative chambers, the new coalition leader will need to cooperate with other parties to advance any legislation. Small kingmaker parties the Democratic Party for the People, the Japan Innovation Party (Ishin) and emerging far-right Sanseito are seen as potential partners of the ruling coalition.
The smaller opposition parties have been calling for a reduction in the sales tax to help households deal with the cost-of-living crunch caused by inflation, a move that would widen the hole in government finances. The need for the LDP to gain opposition cooperation has fueled concerns that whoever wins will have to loosen fiscal discipline to ensure passage of legislation.
Raising interest rates would help curb inflation but could also hit growth if carried out too quickly. While Takaichi sharply criticized the BOJ for raising rates last year, she’s steered clear of talking in depth about monetary policy this time. Still, market players view her as the candidate most likely to slow down the BOJ’s normalization campaign. The other candidates have largely said monetary policy should be left to the central bank.
The BOJ left its benchmark interest rate unchanged at 0.5% last week, though it is expected to hike again in the coming months with an October move still seen as a possibility.
Other contentious issues where the candidates may differentiate themselves include controls on foreign residents in Japan, energy policy and agricultural policy.
