Current Japan PM and President of the ruling Liberal Democratic Party (LDP) Yoshihide Suga announced his resignation earlier this month, throwing open the race to become the country’s next prime minister. With the LDP’s status as the largest party in the Japanese parliament, it is almost assured that whoever wins the LDP presidential race (set to take place on September 29) will become the next prime minister. After the LDP’s internal election is settled, the party will call for national elections, which must take place before November 28.
The massive unpopularity of Japan PM Suga at the time of his resignation and widespread anger at the leadership’s handling of the COVID-19 crisis will likely result in efforts by the LDP to repair its public image. We expect that a new stimulus bill will be passed once national elections conclude to boost economic recovery after the recent outbreak. SMEs and low-income households, the segments of the economy that were worst impacted by the pandemic, are expected to be the primary beneficiaries of the stimulus. Further, Japan will take a harder stance toward Beijing, a move that will be popular among more conservative sections of the Japanese population. Three of the leading candidates—Taro Kono, Fumio Kishida, and Sanae Takaichi—have each declared their intentions to raise defense spending and improve missile capabilities to address rising tensions in the South China Sea and the Korean peninsula.
Consumer confidence and business sentiment have already shown signs of improving, as optimism rises over Suga’s departure and expectations for a future stimulus package. Macroeconomic policies will remain expansive in the medium term as the LDP attempts to boost economic recovery and regain favor with the Japanese people. Firms should monitor upcoming LDP elections where the direction of future policy will be determined.
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