Japan: Possible general election on 22 October - Deutsche Bank

Taisuke Tanaka, Strategist at Deutsche Bank, suggests that they see a strong likelihood that Prime Minister Shinzo Abe will soon dissolve the Lower House and call a general election for 22 October.

Key Quotes

“We suspect that Abe has judged this the best timing for ensuring the continuance of his rule given conditions over the next 1-2 years. The first factor is the lack of credible rivals. The Democratic Party, the largest opposition group, has weakened badly, prompting a wave of defections by party members. Also, the impressive strides made in the Tokyo local election in July by former LDP member Governor Yuriko Koike have yet to translate to a national force.”

“Second, the North Korean situation has revived public support for Abe. Voters have little hope that the opposition could deal with the crisis. The opposition charges the government of taking advantage of the tensions on the North Korea to call an election and divert attention from the recent school construction scandals. The Abe administration would counter that it needs to confront Pyongyang with a solid government in place. If troubles with North Korea should intensify during the election period, we believe voters will see the domestic scandals as relatively small affairs and count more on the Abe-led LDP for leadership.”

“An recent NHK poll has found that over 40% of voters support no party. Prospects for such votes have often been a focus in past elections. The voting rate among this sector could decline in the coming election given the lack of clear election themes and the absence of credible alternatives to the LDP. A low voting rate would be advantageous to the ruling LDP-Komeito coalition, which boasts a large loyal voting bloc and organizational strength. While the coalition may be unable to retain its two-thirds majority in the chamber, we believe it will have no problem maintaining its absolute majority.”

“We do not wish to deny the unpredictability of politics, but we consider the high likelihood of continued Abe rule neutral or positive for USD/JPY markets. The markets have been bearish recently on the US economy and interest rates, the main driver of the USD/JPY, and we see leeway for a bullish turnaround in the coming 3-6 months. Setting aside geopolitical risk in East Asia, we feel that Japanese domestic political factors are unlikely to upend the moderately bullish trend in the USD/JPY.”