[2024 Japanese Election Issue Briefing] ③ The LDP's 'Preservation' Orientation and the Future of Economic Policy

Prime Minister Shigeru Ishiba, who dissolved the House of Representatives just eight days after taking office on October 1, 2024—the shortest period in post-war history—and opted for a general election on October 27, saw his Liberal Democratic Party (LDP) and its coalition partner, Komeito, suffer a crushing defeat, winning only 215 seats, 18 short of an absolute majority. This marks the first time the LDP has failed to secure an absolute majority on its own in a House of Representatives election since 2012. The LDP had secured an absolute majority in the 2012, 2014, 2017, and 2021 House of Representatives elections. Therefore, the outcome of this election signifies a crack in the LDP-dominant system that has been in place since the launch of the second Abe Shinzo administration in 2012. Looking at a longer timeframe, this election result raises doubts about the sustainability of stable governance based on the LDP-Komeito coalition, as it is the first instance since the establishment of the LDP-Komeito coalition relationship in 1999 where the combined seats of the two parties did not constitute an absolute majority, excluding the exceptional 2009 election where the Democratic Party secured an absolute majority.

The primary cause of the results of this House of Representatives election, which has led to a fracture in the LDP-dominant system that lasted for roughly twelve years and the stability of the LDP-Komeito coalition that has persisted for about a quarter-century, is the negative judgment of Japanese society regarding the LDP's political funding scandal. However, Japanese society's negative assessment of the political funding scandal is linked to its dissatisfaction with the economic policy management of the LDP-Komeito coalition government. This article aims to analyze the key political and economic dissatisfactions of Japanese society that led to the election results, assess the shortcomings of the Ishiba LDP's response, and forecast the direction of Japan's economic policy in the context of a closely contested House of Representatives landscape.

I. General Election Amidst Inflation

Setting aside the intricate details of Japan's domestic politics and examining recent Japanese economic indicators, it is clear that inflation is a reason why the election could not be favorable to the ruling party. As can be seen in [Figure 1], Japan's inflation rate has been at a very high level since 2022. Of course, when compared globally, Japan's inflation figures themselves are not particularly exceptional. It is well known that macroeconomic policies implemented by various countries to stimulate their economies during the post-COVID-19 period have led to inflation.

Of course, from the perspective of the policy goal of achieving economic growth through price increases and creating a virtuous cycle that leads to income growth across society, which the Japanese government and the Bank of Japan have pursued since 2012 with Abenomics, rising prices are not a negative indicator. However, the quantitative easing measures implemented since 2012 to stimulate price increases did not cause significant price increases before the COVID-19 era in 2020, leading to lukewarm economic improvement. During the second Abe administration, the Japanese government urged Japanese corporations to link the improved corporate performance, resulting from the weak yen and stock market surge caused by quantitative easing conditions, to an increase in the labor share of income. The link between rising prices, improved corporate performance, and wage growth during the second Abe administration can be said to have operated on a modest scale.

The characteristic of Japan's price increases since 2022 is that the scale is larger and the rate of increase is much faster compared to the 2010s. Furthermore, the scale and speed of price increases are largely influenced by the weak yen, which resulted from decoupling with the macroeconomic policies of other developed countries, including the United States, rather than being an intended outcome of Japanese government policy. During the Fumio Kishida administration, which took office in October 2021, wage increases aimed at strengthening the labor share of income were consistently emphasized, but the rate of increase struggled to keep pace with the magnitude and speed of price increases combined with the weak yen.

[Figure 1] Trends in Consumer Price Index, Wage Index, and Consumer Confidence Index (January 2016 - August 2024)

자료: 총무성 「消費者物価指数」, 후생노동성 「毎月勤労統計調査」, 내각부 「消費動向調査」

Notes: 1. Consumer Price Index and Wage Index are based on 2020=100.

2. The Wage Index uses the regular cash earnings wage index for establishments with 5 or more employees.

3. The Consumer Confidence Index uses raw figures (total households).

The political and economic dissatisfaction of Japanese society in the recent general election can be found in the gap between the consumer price index and the wage index over the past two years. The consumer confidence index, which had improved compared to the past within the modest-scale virtuous economic cycle of the 2010s, deteriorated again in the post-COVID-19 era. The recent high growth of the Japanese stock market is a distant reality for Japanese society as a whole.

II. Ishiba's Vision of 'Preservation'

Ishiba's victory in the LDP presidential election on September 27 was a strategic choice by LDP politicians. Replacing a leader with low approval ratings before a national election to boost approval ratings is a common occurrence in Japanese political history. The election of Kishida in the LDP presidential election in September three years ago and the LDP's victory in the subsequent House of Representatives election with Kishida as the new face is a prime example. In 2024, LDP politicians hoped to repeat the pattern of Kishida's choice and electoral victory from 2021 through Ishiba. Ishiba, who had long been in the LDP's non-mainstream faction, was relatively free from the political funding scandal centered around the Abe faction. Although Sanae Takaichi, a representative of the Abe faction and former Minister for Economic Security, showed considerable competitiveness in the presidential election, Ishiba's opportunity arose through a process of elimination, avoiding the political backlash that could occur if the Abe faction, the center of the political funding scandal, regained LDP leadership. The fact that former Prime Minister Yoshihide Suga, who had supported Shinjiro Koizumi, and Prime Minister Kishida, who had not shown support for any particular candidate, endorsed Ishiba in the run-off election symbolizes a strategic choice to appeal to voters with the newness of the LDP.

However, in terms of economic policies to address the public's backlash against the economic situation during the Kishida administration, there is no novelty in Ishiba's approach. While Ishiba has been highly regarded for his expertise in security affairs, he has never demonstrated a distinct policy orientation in socio-economic policy. Nevertheless, in the 2024 LDP presidential election and the House of Representatives election, Japanese society expected not only proactive political reform efforts but also alternatives in economic policy. Ishiba's status as a non-mainstream figure within the LDP during the Abe and Kishida administrations is not sufficient to fill the substance of this newness. For instance, in 2021, Kishida, upon becoming president and prime minister, appealed for novelty by proposing 'New Capitalism,' which aimed for a 'virtuous cycle of growth and distribution' distinct from Abenomics.

In 2024, Ishiba lacked this novelty in socio-economic policy direction. The 'preservation' rhetoric Ishiba employed in his policy speech to the Diet on October 4 after becoming prime minister and in the LDP's campaign pledges for the House of Representatives election lacks specificity. Prime Minister Ishiba structured his policy speech into five 'preservation' sections (Preserve Rules, Preserve Japan, Preserve the People, Preserve the Regions, Preserve Opportunities for Young People and Women), and the LDP's campaign pledges for the House of Representatives general election also presented five 'preservation' items (Preserve Rules, Preserve Livelihoods, Preserve the Nation and Protect the People, Preserve the Future, Preserve the Regions). Each item to be preserved signifies a specific policy area. 'Rules' refer to political reform; 'Japan' or 'Nation' refers to foreign affairs and security policy and disaster response; 'People' or 'Livelihoods' refers to economic policy centered on price measures; 'Regions' refers to regional revitalization policies; and 'Future' or 'Opportunities' refers to measures for low birth rates and education policies.

The 'preservation' rhetoric put forth by Ishiba is reminiscent of the slogan 'Livelihoods and Communities First' advocated by the Democratic Party of Japan in the 2007 House of Councillors election and the 2009 House of Representatives election. The DPJ's slogan at the time, directly addressing the societal disparity issues caused by Junichiro Koizumi's neoliberal reforms, clearly demonstrated the DPJ's policy orientation towards strengthening universal welfare, which contributed to their landslide victories in both elections. Ishiba's 'preservation' vision also has the potential to differentiate itself from the Kishida administration, depending on its content. However, the specifics under Ishiba's 'preservation' slogan do not deviate from the discourse of a 'virtuous cycle of growth and distribution' that has been consistently mentioned during the Kishida administration.

Differentiation from the Kishida administration in socio-economic policy is more evident in Sanae Takaichi. Despite the clear limitations of representing the Abe faction, which has limited room to maneuver due to the political funding scandal, Takaichi has consistently advocated for implementing aggressive fiscal expansion without increasing the burden on citizens. Although her active embrace of Modern Monetary Theory (MMT) has raised concerns from mainstream economic perspectives, her stance against increasing the burden on citizens transmitted a policy direction that could resonate with public dissatisfaction towards the Kishida administration's economic policies.

In economic policy, Ishiba's unique strength lies in his emphasis on regional revitalization. When the Abe administration launched its regional revitalization policy in 2014, Ishiba served as the first Minister for Regional Revitalization. Regardless of the political context that led him to this position after stepping down as secretary-general, the role was fitting for Ishiba, a native of Tottori Prefecture—a sparsely populated region—and an admirer of Kakuei Tanaka, a symbol of balanced development. He himself strongly intended to leverage regional revitalization as his political asset. Upon becoming prime minister in 2024, Ishiba advocated for 'Regional Revitalization 2.0,' clearly stating his policy direction to boost regional economies by doubling the regional revitalization grants.

However, regional revitalization has clear limitations as a representative vision for Ishiba's 'preservation.' Firstly, the scale of government support allocated to regional revitalization policies is not substantial. Given the fiscal constraints that make it difficult to significantly increase the overall budget for regional grants, doubling the regional revitalization grants does not represent a major quantitative impact. Furthermore, emphasizing increased support for regional areas from a balanced development perspective is unlikely to appeal to urban wage earners. When Kakuei Tanaka advocated for balanced development through his 'Remodeling the Japanese Archipelago' plan in the 1970s, there was national acceptance for balanced development through concentrated development. The Democratic Party of Japan administration in the late 2000s was able to mobilize significant voter support by combining increased support for regional areas with support for urban wage earners. However, Ishiba's regional revitalization slogan is not linked to livelihood support policies for urban wage earners.

III. Limitations of Inheriting the Kishida Administration

Ultimately, in terms of economic policy, the Ishiba administration failed to present effective countermeasures for urban wage earners' dissatisfaction with inflation. Observing the significant reduction in LDP seats in the 2024 House of Representatives election, the LDP's loss of numerous constituencies in urban areas, particularly in the Kanto region, to opposition parties, primarily the Constitutional Democratic Party, was striking. While the LDP also lost many constituencies to opposition parties in regional cities, particularly in Hokkaido and Tohoku, the shift in the Kanto urban areas, which had shown a significant LDP advantage in the 2017 and 2021 elections, from a close contest to an opposition advantage had a major impact on the overall seat distribution. Had the opposition parties formed a united front, this general election might have resulted in a clear change of government, similar to 2009, rather than a failure of the LDP-Komeito coalition to secure a majority.

For the Ishiba administration to prevent urban wage earners' dissatisfaction with the Kishida LDP from spreading to the Ishiba administration, Prime Minister Ishiba himself would need the ability to present a vision distinct from the Kishida LDP's economic policies, or a consultative group to act on his behalf. Ishiba lacks both the ability and the support base. As mentioned earlier, Takaichi within the LDP has shown such a direction. Furthermore, Kishida's considerable influence exists in the very formation of the Ishiba administration. It is well known that Kishida demanded the inheritance of the Kishida administration's policy direction as a condition for supporting Ishiba. The election results received by the Ishiba administration, which stands within the continuity of the Kishida administration's policy direction, are largely an assessment of the Kishida administration rather than the Ishiba administration.

Former Prime Minister Kishida and the core forces of the Kishida administration may deem the high level of dissatisfaction and negative evaluation of the Kishida administration by Japanese society as unfair. As shown in [Figure 1], wage increases have indeed occurred since the spring of 2024. It is not that the Kishida administration did not earnestly address the wage increases that kept pace with (or, in political terms, 'exceeded') the price increases it consistently emphasized.

Furthermore, officials from the Kishida administration would likely have a positive self-assessment regarding the government's decisions to make proactive investments in Japan's future-oriented challenges. The substantial increase in defense spending, proactive industrial and scientific technology investments such as GX (Green Transformation) for building a green economy, and increased government expenditure on measures to address the declining birth rate have been consistently argued as necessary to respond to domestic and international structural environmental changes facing Japan. During the eight years of the Abe administration from 2012, the necessity of these challenges was actively expressed through former Prime Minister Abe's strong charisma. However, many of the actual decisions for proactive government fiscal spending measures to carry out these tasks were made during the Kishida administration.

However, the expansion of government spending on these future-oriented challenges inevitably leads to a politics of burden sharing. Increased defense spending leads to defense tax increases, measures to address the declining birth rate lead to additional premiums on social insurance such as health insurance under the guise of declining birth rate support contributions, and increased industrial investment leads to increased national debt. The dissatisfaction of Japanese society with the Kishida administration is not solely due to inflation, which is closely linked to monetary policy and exchange rate measures. It is a complex combination of dissatisfaction with the increased burden for future-oriented challenges. The fact that various opposition parties in this election actively advocated for measures to alleviate the burden on the public, such as freezing or lowering the consumption tax, in addition to supporting livelihood stability, stems from this context.

IV. Outlook for the Next Japanese Administration's Economic Policy Direction

As a result of this House of Representatives election, Japan is currently in a state of a hung parliament where no single force holds a majority, allowing for various coalition possibilities. Firstly, the LDP-Komeito coalition, having lost its majority in the House of Representatives, requires additional partners for the election of a prime minister and future governance. However, the seat distribution makes it numerically possible to form a broad opposition coalition (non-LDP or non-LDP-Komeito) comprising the Constitutional Democratic Party, the Japan Innovation Party, and the Democratic Party for the People. In fact, Yoshihiko Noda, leader of the Constitutional Democratic Party, has spoken of a change in government through an opposition alliance after the election. Between the two options of an LDP-Komeito + other parties coalition and an opposition alliance, the former is more likely. Specifically, it is currently most plausible that the Democratic Party for the People will not participate in a coalition government but will establish a partial policy cooperation relationship with the LDP-Komeito.

If the Ishiba administration of the LDP-Komeito coalition continues with policy cooperation with the Democratic Party for the People (or the Japan Innovation Party), the Ishiba administration will inevitably have to accept various policies emphasizing expanded support for livelihood stability and alleviating the burden on the public, as advocated by the Democratic Party for the People or the Japan Innovation Party. Of course, even if a new opposition coalition government is formed, the situation will not be different. Institutionally, a prime minister must be elected within 30 days after the House of Representatives election. Due to diplomatic schedules such as the Asia-Pacific Economic Cooperation (APEC) and Group of Twenty (G20) summits in mid-to-late November, the framework for the next government is likely to be decided in early November.

Regardless of whether the Ishiba administration continues or a new non-LDP coalition government is formed, the Ministry of Finance is likely to be the biggest loser of this election. The perspective of alleviating the burden on the public is highly likely to be strongly reflected in the determination of the government budget proposal and the Basic Policy on Economic and Fiscal Management and Reform in December, rather than the perspective of fiscal soundness. Furthermore, the supplementary budget, to be enacted before March of this year or next year, is expected to be of substantial scale, and fiscal soundness will be even further sidelined in the deliberation of the budget and various legislative proposals during the ordinary Diet session from January to June next year. The schedule for the House of Councillors election in July next year reinforces this outlook.

Professor Naohiro Yashiro, who has consistently emphasized the need for fundamental reform of Japan's economic structure, expresses concern that no discussions regarding institutional reforms to enhance the sustainability of the social security system, such as healthcare and pension reforms, have taken place between the ruling and opposition parties in this election. However, the difficulty in advancing such institutional reform discussions stems from the status quo-oriented nature of Japanese society. ■

■ Lee Jeong-hwanProfessor, Department of Political Science and International Relations, Seoul National University.

■ Managed and Edited by: Park Han-soo_EAI 연구원

    문의: 02 2277 1683 (ext. 204) | hspark@eai.or.kr