The composition of Japan’s future government remains uncertain following a voter backlash against Prime Minister Shigeru Ishiba’s ruling coalition, leaving no party with a clear mandate to lead the world’s fourth-largest economy.
This uncertainty has caused the yen currency to drop to a three-month low as investors and analysts brace themselves for days, or possibly weeks, of political negotiations to form a government and potentially see a change in leadership.
Ishiba’s Liberal Democratic Party and its junior coalition partner Komeito secured 215 seats in the lower house of parliament, down from 279 seats, as voters expressed discontent over a funding scandal and economic challenges.
The biggest winner of the election was the main opposition Constitutional Democratic Party of Japan (CDPJ) with 148 seats, up from 98, but still falling short of the 233-seat majority.
According to the constitution, the parties now have 30 days to come together and form a coalition government, with uncertainty lingering over Ishiba’s future as prime minister following the electoral setback. The influence of smaller parties in the negotiations could play a crucial role in determining the outcome.
“It seems unlikely that Prime Minister Shigeru Ishiba will continue as the leader of the LDP and lead a new government as prime minister, although he may potentially remain as a caretaker,” said Tobias Harris, founder of Japan Foresight, a political risk advisory firm.
CDPJ leader Yoshihiko Noda has expressed willingness to collaborate with other parties to remove the incumbents, but analysts view this as a less probable scenario.
The political instability comes at a time when Japan is facing economic challenges and heightened security concerns in East Asia, driven by an increasingly assertive China and the nuclear threat posed by North Korea.
Furthermore, these developments unfold just over a week before the United States – Japan’s closest ally – holds its own unpredictable election.