Abe "Plunges Into Crisis" After LDP Suffers "Historic Defeat" In Tokyo Elections, USDJPY Slides

Tyler Durden's picture

On Sunday Japanese PM Shinzo Abe’s Liberal Democratic Party suffered what Reuters called a "historic defeat" in the Tokyo assembly election, and "plunged into a crisis" after losing to an upstart outfit in an vote that is seen as a harbinger for Japan's national elections, and signaling trouble ahead for the premier who has suffered from slumping support after a series of political scandals.

"We must recognize this as an historic defeat," former defense minister Shigeru Ishiba was quoted by NHK as saying. "Rather than a victory for Tokyo Citizens First, this is a defeat for the LDP," said Ishiba, who is widely seen as an Abe rival within the ruling party.

"We must accept the results humbly," said Hakubun Shimomura, a close Abe ally and head of the LDP's Tokyo chapter. "The voters have handed down an extremely severe verdict."

According to Bloomberg, the ruling LDP party was projected to win its lowest number of seats ever in the capital, a crushing blow for Abe, which sent the USDJPY sliding after suddenly the very fate of Abenomics is in question, as past Tokyo elections have been bellwethers for national trends. A 2009 Tokyo poll in which the LDP won just 38 seats was followed by its defeat in a general election that year, although this time no lower house poll need be held until late 2018.

Tokyo Governor and head of Tokyo Citizens First party Yuriko Koike

As Reuters adds, the Tokyo Metropolitan assembly election was a referendum on Governor Yuriko Koike's year in office, but the dismal showing for Abe's party is also a stinging rebuke of his 4-1/2-year-old administration. Koike's Tokyo Citizens First party and its allies were on track for between 73 to 85 seats in the 127-seat assembly, according to NHK TV exit polls. Later vote counts showed the LDP was certain to post its worst-ever result, winning at most 37 seats compared with 57 before the election, NHK said, while Koike's party and allies were assured a majority.

Koike, a media-savvy ex-defense minister and former LDP member, took office a year ago as the first female governor in the capital, defying the local LDP chapter to run and promising to reform governance of a megacity with a population of 13.7 million and an economy bigger than Holland's.

 

Among her allies is the Komeito party, the LDP's national coalition partner.

 

"I am excited but at the same time, I am also keenly aware of the weight of my responsibility," Koike told NHK, adding the results had exceeded her expectations.

It was not immediately clear how the LDP's loss would alter Japan's political landscape: according to Japanese press, the strong showing by Koike's party will fuel speculation that she will make a bid for the nation's top job, though that may not be until after the 2020 Tokyo Olympics. It could also widen cracks between the LDP and the Komeito while damaging prospects for the opposition Democratic Party.

What is more troubling for the Yen and global capital markets, is that Abe's rivals in his party could be encouraged by the LDP's dismal performance to challenge him in a leadership race in September 2018, victory in which would set Abe on course to become Japan's longest-serving leader and bolster his hopes of revising the post-war, pacifist constitution.

Meanwhile, according to Gerry Curtis, professor emeritus at Columbia University, Japan’s political landscape could be set for a shake-up.

"We may discover that Japan is not all that different from Britain, France, and the U.S. in its ability to produce a big political surprise," he said, referring to recent elections in those countries.

 

The LDP's thrashing could also make it harder for Abe to pursue his cherished goal of revising the U.S.-drafted constitution's pacifist Article 9 by 2020, a politically divisive agenda, said Sophia University professor Koichi Nakano.

 

"His prime motive to stay in power is his desire to revise the constitution, but once his popularity really starts to fall, that becomes very difficult to do," Nakano said.

Having been hit by a wave of favoritism scandals in recent months, Abe's the most recent troubles center on concern he may have intervened to help Kake Gakuen (Kake Educational Institution), whose director, Kotaro Kake, is a friend, win approval for a veterinary school in a special economic zone. As noted here previously, Abe got in trouble because the government has not granted such an approval in decades due to a perceived glut of veterinarians. Abe and his aides have denied doing Kake any favors.

But potentially more devastating - according to Reuters  - is "the impression among many voters that Abe and his inner circle have grown arrogant." Perhaps it is because instructing your central banker to monetize all your GDP in debt, and boost the stock market takes some serious skills?

Meanwhile, the scapegoating process is being prepared: Abe is expected to reshuffle his cabinet in coming months in an effort to repair his damaged ratings, a step often taken by beleaguered leaders but one that can backfired if novice ministers become embroiled in scandals or commit gaffes. Among those many political insiders expect to be replaced is Defense Minister Tomomi Inada. Inada's remark during the Tokyo campaign seeking voter support in the name of the Self-Defense Forces, as the military is known, came under heavy fire. By law, the military is required to be politically neutral.

In a kneejerk response, the USD/JPY fell as much as 0.4% to 111.90 in early Asia trading Monday in the wake of the shock loss.

The reason why suddenly Japan's political process may go under the microscope, is that if indeed the LDP and Abe are in trouble, then the future of the BOJ's QQE (with Yield Control) are in question. This is a problem because as Deutsche Bank reported late on Friday, "[our model] highlights the relative importance of BoJ purchases to Fed and ECB. For a 100 bn in annualized purchases of each, the BoJ has been associated with a 15 bps decline in term premium, almost twice the impact of either the Fed or the ECB. While the market is rightly concerned about the extent and timing of ECB taper, the BoJ is potentially much more important to the rate outlook as it was in the middle of last year."

But maybe Abe doesn't even need to be ousted: according to Nobuyuki Nakahara, a former BOJ board member and Abe advisor, Kuroda shouldn’t serve another term as governor of the BOJ "because the central bank will need fresh ideas as it moves toward exiting years of unprecedented monetary easing."

"An exit will surely come up within the next five years and we need someone who can prepare for it," said Nobuyuki Nakahara, a former BOJ board member.

 

“He will fall into inertia and struggle to come up with bold new ideas. It’s the same in the private sector when a corporate president stays too long," he said.

With everyone expecting a political black swan to emerge out of Europe at the start of the year - only for all concerns to be laid to rest by the summer - could the source of 2017's true political shock end up being Japan?


Shinzo Abe shouts 'Banzai!' with members of the ruling Liberal Democratic Party
during the annual party convention in Tokyo

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Raffie's picture

SWEET! Abe the uber liar is out. This is sweet.

PersonalResponsibility's picture

This is not sweet for any other printing press. The first to exit wins.

besnook's picture

wrong. the japanese positive current account affords japan's debt. the negative usa current account adds to usa debt. the yen is still much stronger than the dollar. the only reason the dollar has any value is the usa military and the cia.

Bill of Rights's picture

Liberal democrat party.... nuff said .the fake Democracy crap over.

Bill of Rights's picture

Liberal democrat party.... nuff said .the fake Democracy crap over.

peopledontwanttruth's picture

Abe show me wax on, wax off. Now show me paint the fence. Now show me sand the floor.
Concentrate Abe

Francis Marx's picture

Sounds like a repeat of the democratic party.

SoDamnMad's picture

Could we talk Bill and Hillary, Donna Brazill, Chuck Schumer, Maxine Waters, and a dozen more into a group seppuku?

besnook's picture

the article failed to mention the significance of the hatoyama victory in 2009. google hatoyama manifesto to find out why. the japanese people are not interested in militarizing. they are also getting real tired of being a usa buttboy.

gatorengineer's picture

Nothing is going to stop the presses until the end........... Will be intersting to see Illinoid, Connecticunt, and Welfarico play out......  The Globalists have to come up with a cure for state / local bankruptcies.

blue51's picture

Mnuchin is on his deck in the Hamptons , designing the look of the 200 yr Bond . He found a  place to put the Tubman photo .

Seasmoke's picture

This is big. This is great. This is Golden !!!!

Latitude25's picture

Gold should spike when the market opens

Jayda1850's picture

You would think and you would be wrong. The BOJ will continue to buy up all the JGB's and the majority of the Nikkei.

Latitude25's picture

Go look at the price action.  It's spiking as predicted.

CNONC's picture

Hahahahahaha!  Hope you didn't lose too much. 

Peak Finance's picture

Well....

If there is a world-wide money printing circle jerk,

Each participant Printing money to buy the others stocks and bonds

and a "jerkie" pulls-out (lol)

What happens next??   

itstippy's picture

Don't hold your breath or go short.  According to the article:

 

 

 

"An exit will surely come up within the next five years and we need someone who can prepare for it," said Nobuyuki Nakahara, a former BOJ board member.

Five more years of "unorthodox" Central Bank stimulus measures that were supposed to be "temporary, targeted, and brief" (per the Bernanke and Abe.).  After that, they'll assess how it's working.  Until then it's print, print, print and make meaningless comments about needing further clarity.

Draghi was truthful when he vowed to do "Whatever it takes".  That means print, print, print, print . . .

lolmao500's picture

0.4% oh noes the humanity!

swamp's picture

" ... an historic defeat ... "

Japanese know English better than most Americans.
Common is "a" historic ...

besnook's picture

a brit must have written this article. they don't pronounce the h.

What Name's picture

The "h" is soft, so it's usually an historic. It is a topic of discussion though.

Norfry's picture

Such an honest question, in a human or an human , but not an inhuman, debate, might appear as a kind of miracle in an hallowed hallway of CNN, given their propensity for avoiding an honest discussion, however, I belabour, or is that belabor,  the point, and so let us revert to saving the world without undue emphasis on grammatical excellence, an excellence which after all all cannot reasonably aspire to, and so on andf so forth....

Albertarocks's picture

Does your browser have a history that you want to delete?  Or does it have "an" history you want to delete?

ANSWER: It has 'a' history you want to delete.  Therefore, as much as some people might want to bash swamp for his conclusion... his opinion about the proper term being "a" historic is absolutely correct.  Prior to about 10 years ago, nobody, and I mean NOBODY, said "an historic".  Then for some unknown and completely wacky reason, 'everybody' in the media started using it almost on the same day... as if they were told by some asshole higher up "from now on we say "an historic". 

Improper grammar in the use of "an historic" pisses swamp off.  And it pisses me off.  By rights it should be pissing you off too, because it is a creation of the media.

SmedleyButlersGhost's picture

What a nonsensical comment. So an article written by an English speaking and writing author  about Japan that is grammatically correct is somehow indicative of Japanese superiority of the English language.  In American - WTF is wong with you?

hooligan2009's picture

libtard demonrat party - giant turds looking for more sandwiches

bring out the douche

Omen IV's picture

South Korea - check

Japan - check

Philippines - check

North Korea - Kim Jong-un consistent and maintaining

and The Hegemon has a new $15 Billion Aircraft Carrier which the Russian S-500 missile system - Prometey  - can take out from a 1,000 miles away in the China Mainland  as they did from the Caspian Sea with the 400' into Syria.

Home court advantage coming to .........Xi Jinping for diplomacy?

besnook's picture

what is really funny is the most sexist nation in the world elects a woman to lead it while the most feminist nation in the world, the usa, doesn't want anything to do with a woman for president. let's see, what other misogynist nations have elected women for leaders- the phillipines, india, pakistan, myanmar, south korea and, of course the "enlightened" brits and germans. lol. did i miss any?

pizdowitz's picture

You must have your BS glasses on. We are in the XXI century. Politics is not about women, or feminism, any longer.

Only cunts who cannot get into office on merit, invoke the victim script, like Cankles.

coast1's picture

i print money rong rong time...

SMD's picture

Professor Paul Jewgman: "Turn those voting-count machines back on!"

pizdowitz's picture

Oops, the  Japanese are clearly sick of being bitch-slapped by the US. And fronted by a woman?? Wow, this looks Putinesque in its dimensions.

Too-Big-to-Bail's picture

His Abe technique puts people down

novictim's picture

Big national debt-Abe got cleaned out by a party calling itself Tokyo Citizens First?  Awesome!  Winning!

uhland62's picture

So, Abe has still got plans to change the pacifist constitution?

The people seem to disagree with him after they have been instructed for 70 years that war is bad. Lesson well learnt: Soldiers stay at home to defend, not go out to do more war in other people's streets. 

Now go home and smell the roses Mr. Abe.

Cordeezy's picture

Yeah this will not last long, once the people figure out that giving up a printing press means hurting their every day lifestyle, the people will begin to revolt.  Japan will be Greece very soon.

 

www.escapeamazon.com

 

uhland62's picture

So, Abe has still got plans to change the pacifist constitution?

The people seem to disagree with him after they have been instructed for 70 years that war is bad. Soldiers stay at home to defend, not go out to do more war in other people's streets. Lesson well learnt.

Now go home and smell the roses Mr. Abe.