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Prime Minister Fumio Kishida has trailed a plan to address inflation, sustain wage hikes, promote domestic investment, reframe demographic challenges, and improve disaster resilience. Now two years into the current administration, and with dire approval ratings, will the PM be able to persuade party and public that he deserves to retain his post?

The five pillars themselves are essentially a rehash of previously announced economic measures. Kishida has instructed ministers to produce concrete plans and costings by the end of October, and while the measures should support the economy, they are unlikely to significantly boost momentum, given the scale of recent Covid-era stimulus packages.

That said, Japan is finally showing real signs of escaping decades of deflation (see our recent deep dive, Signs of a sea change in Japan) . Kishida and cabinet have had their fair share of political scandals and administrative blunders, and the PM’s approval rating is low, but progress has been made on increasing defence spending and bolstering the country’s semiconductor industry.

Five pillars, two polls

The PM has two key votes coming up: one within his party, with the LDP leadership race scheduled for September 2024, and one with the country, in the form of a lower house election. Kishida’s best bet for holding onto his position is to pull off a convincing win in a snap election before seeking his party’s approval to retain his post; a cabinet reshuffle in mid-September was presumably intended to improve approval levels for the administration, allowing the PM to call an election during the autumn parliamentary session. The reshuffle did not bring the expected polling bounce, however, and an election will likely need to wait at least until the 2024 session.

If no election is held before the LDP leadership contest, then Kishida will need an outright majority from a voting system that weights his colleagues in the Diet equally with the wider party membership; otherwise he will need to win a run-off ballot heavily skewed to parliamentary members. With lower house elections due no later than October 2025, Kishida may struggle to convince his colleagues that he has the broad popular appeal to lead them to victory as the face of the party.

And yet, while Kishida’s cabinet reshuffle has done little to move the needle with the voting public, he has played a cleverly defensive political game. By retaining Digital Minister Taro Kono and LDP Secretary-General Toshimitsu Motegi in their current positions, he has defused the possibility of either of these strong candidates challenging for the party leadership – to do so would be almost unprecedented – and there is no other obvious opponent at present.

I expect Kishida’s reselection as LDP president to be positive for Japan. He will continue to push for a virtuous wage/price spiral to overcome deflation, and to revitalise the economy through greater investment in both physical capital and worker reskilling. Growing labour shortages will provide a further boost for spending on digital transformation and human capital, and these will be increasingly important factors in how Japan Ltd. creates value. Some companies will of course adapt more successfully than others to this shifting environment, with active managers best positioned to identify those firms making the right investments for growth.

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The information contained in this document is intended solely for the purposes of information only and is not intended as an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. This report has not been reviewed by the Monetary Authority of Singapore.