Is Suga’s race run as Japan’s premier?

Public frustration around Japan’s four waves of coronavirus, the slow vaccine roll-out and the controversial holding of the Olympic Games has left Suga’s cabinet approval rating at a record low.

Approvals have fallen from 70% at the start of his tenure only last year to around 30%. This level has historically been somewhat of a danger level for Japanese leaders and  internationally, Suga’s popularity is now one of the lowest in the world (Chart 1).

Chart 1: Net approval for leaders around the world


Source: Schroders Economics Group, Morning Consult, 28 July 2021.

Earlier this month, Suga was dealt another blow in the Tokyo Assembly election. Despite winning the highest number of seats, the ruling Liberal Democratic Party (LDP) and its coalition partner, Komeito, fell short of a majority.

Ultimately, this leaves Suga’s status as prime minister in a vulnerable position. His term expires in September and the lower house election also looms, which will lead to a general election and the appointment of a new cabinet. This election must be held before mid-October though Suga has hinted at dissolving the lower house before his term as party leader expires.

It is widely expected that the ruling LDP continues to remain the dominant force in Japanese politics due to weak opposition, which has been divided for some time. Instead, the threat to Suga is from rival factions in the LDP.

At this stage it is unclear who the LDP will gather around and the political uncertainty may weigh on the Japanese equity market in the short term. In reality, potential successors including Karo Tono (vaccine roll-out minister), Shigeru Ishiba (former defence minister), Shinjiro Koizumi (environmental minister) are unlikely to significantly shift the direction of monetary and fiscal policy, which has generally been expansionary, a policy stance set by former Prime Minister Abe. 

However, Japan may no longer be seen as a market of political stability that was associated with Abe. Before Abe, Japan had a revolving door of prime ministers (six in six years). For investors, ultimately more frequent leadership changes are likely to disrupt policies under structural reform which take time to implement and even longer to see results.