Fumio Kishida Set To Become Next Japanese PM After Surprise Win In LDP Leadership Contest

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by Tyler Durden
Wednesday, Sep 29, 2021 - 11:02 AM

In what the NYT described as "a triumph of elite power brokers over public sentiment", Japan's governing Liberal Democratic Party on Wednesday elected Fumio Kishida, a former foreign minister and heir of a prominent political family, as its choice to succeed Yoshihide Suga as prime minister of Japan. His victory has alternatively been described as an "upset", while he has also been described as the "continuity candidate" given his close ties to the party leadership.

Kishida triumphed over his top rival, Taro Kono, a former defense and foreign minister, in a runoff vote for party leader that was dominated by conservative LDP insiders, who dominate in the lower house of Japan's Diet, the country's bicameral legislature. In a runoff vote, party legislators voted overwhelmingly for Kishida, who triumphed 257 to 170, installing him as party leader. He will be officially installed as prime minister via parliamentary vote on Monday, but thanks to his party's control of the Diet, his victory is virtually assured.

For Kishida, the victory represents a major comeback from his crushing loss to PM Yoshihide Suga during last year's LDP leadership battle. But the 64-year-old's victory represents defeat for a "new generation" of Japanese politicians who had hoped to take control of the party. Unfortunately for them, Kishida's victory was secured by the same factional politics that have dominated in Japan for decades. The race included two female candidates,

According to the NYT, neither the party's rank and file nor the general Japanese public have shown much love for Kishida, Kono, who maintains a high-profile social media presence and is more well known for his flashy "maverick" persona, was clearly the more popular pick. But this aspect of his personality apparently soured his standing with party insiders, who apparently favored a return to a more staid personality in the country's leader, in keeping with the LDP's post-war tradition.

That could be problematic for Kishida, who now has the responsibility of leading his party through a general election that must be held before the end of November.

By choosing the "safe" candidate, party leaders telegraphed that they believe the LDP has more than enough support to win during the upcoming vote, despite the ructions of the past year, which saw former PM Suga - who ruled for barely a year after taking over for the long-serving Shinzo Abe, who left office due to health problems - spoil his reputation and his popularity due to the surge in COVID cases the coincided with the Tokyo Olympics, which were seen as an abysmal failure by the public.

Polls show the LDP, which has ruled Japan for most of the last 66 years, will triumph once again, in part because COVID has finally receded and the country's state of emergency is coming to an end. PM Suga decided not to seek re-election to the LDP leadership after his popularity plummeted largely due to the COVID outbreak that swept Japan this year. He served only one year in office, which provoked anxieties about a return to the revolving-door days that preceded Shinzo Abe's victory in 2012.

Wednesday's leadership vote was the most hotly contested in years. Traditionally, party leadership coalesces around a candidate early. But this time, it wasn't clear who would prevail until the final runoff votes were counted.

In terms of his politics, Kishida is seen as a "China hawk" who has called for strengthening of Japan's missile defense system in the face of Beijing's growing military might, about which he has expressed "deep alarm".

During the campaign, Kishida said Japan needed to consider building up missile-strike capability against potential foes, including China and North Korea. While Japan is constitutionally forbidden from attacking first, it does have the right to strike enemy missile bases if they had been used in an initial strike, per WSJ.

"The other side’s technology is advancing every day," he said in an interview with WSJ.

He has also recently become more of an economic populist, calling for left-leaning economic policies that would help take pressure off poorer Japanese after the pandemic helped expand wealth inequality. This would mark a shift away from the "neoliberal" approach that has formed the core of LDP ideology for nearly two decades, according to Nikkei.

"The international community is changing dramatically with authoritarian state systems gaining more power. I have a strong sense of crisis toward this," Kishida told Nikkei. He has also emphasized the need for the capability to strike enemy missile bases to prevent to any imminent attack.

He has already proposed an economic stimulus package worth "tens of trillions of yen", a new twist on the LDP's generally pro-business stance.

"Inequality has expanded further because of the coronavirus," Kishida told Nikkei in an interview earlier this month. "At companies, should shareholders take all the fruits of their growth? As proponents of stakeholder capitalism argue, they need to be distributed appropriately." he said, adding "raising worker incomes and compensation" should be a top priority.

Of course, the incoming PM's most important policy issue will be the battle against the COVID pandemic. Kishida has said he hopes to provide enough vaccines to fully inoculate those who want to be vaccinated by the end of November, while promoting the spread of oral coronavirus drugs - something Pfizer is also scrambling to do - by the end of the year.

Still, domestic analysts say that despite slight differences in ideology, Kishida is a member of the LDP's base, just like his father and grandfather, who were also politicians, and as such, the "status quo" will likely remain firmly intact.

"The birth of a 'status quo' leader shows how the LDP lacks the urgency to change," said Ritsumeikan's Kamikubo. "The real focus here is how he forms a cabinet and who he appoints to which role."

"Bringing diversity into his cabinet will be key to winning the upcoming general election," Kamikubo added.

As far as markets are concerned, the next biggest focus for the JGB market (or what's left of it, anyway) is who becomes finance minister. Right now, the risk of hawkish Sanae Takaichi getting the post could weigh on JGB prices, says Takenobu Nakashima, chief rates strategist at Nomura Securities in Tokyo. That wariness could linger through Oct. 4, when the new cabinet is expected to be formed.

Japanese stocks tumbled on Wednesday following news of Kishida's victory even as few analysts expect Kishida to veer significantly from the Abenomics program.