SINGAPORE (Reuters) -Japan’s ruling coalition possibly lost its majority in the upper house, exit polls showed after Sunday’s election, potentially heralding political and market turmoil as a deadline looms on tariff negotiations with the United States.
While the ballot does not directly determine whether Prime Minister Shigeru Ishiba’s shaky minority government falls, it may imply either policy paralysis or a bigger fiscal deficit depending on what the ruling party does next and how strong the opposition becomes.
QUOTES:
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE:
“The risk of coalition loss is well appreciated, and arguably priced in – weaker yen, higher yields. We probably focus attention towards how the fiscally dovish parties do, to see whether the trade has more legs.
“Now we have got to see who won the seats from them and the two parties markets probably will be focused on are the DPP and Sanseito.
“But there are other drivers coming on the horizon for the yen, for example, the trade negotiations between the U.S. and Japan with the August deadline.
“I think the difficulty comes from the rest of the parties forming another coalition but I’m admittedly not a political expert here and I don’t know how easy it will be for the government to open the spigot. I suspect these are issues we will not have visibility on in the immediate future.”
SHOKI OMORI, CHIEF DESK STRATEGIST, MIZUHO SECURITIES, TOKYO (IN A NOTE):
“Prime Minister Shigeru Ishiba has so far offered no hint that he will resign, and the measured confidence of his post-election remarks suggests that he intends to remain in office.
“Many back-bench LDP legislators – wary of plunging into a leadership contest while bilateral tariff talks with Washington are unfinished and party approval ratings remain depressed – appear disinclined to “reach for the chestnut in the fire” by forcing an early succession battle.
“Against that political backdrop, prospects for an aggressive fiscal stimulus are limited. Mr Ishiba has shown no appetite for revenue-hungry measures such as a temporary reduction of the consumption tax rate, and even a leadership change would be unlikely to accelerate the launch of a large-scale package.
“A meaningful supplementary budget, if one emerges, would not be debated until the autumn Diet session at the earliest. The only proposal now circulating within the coalition – a modest, one-off cash transfer to households – would entail little additional financing, and therefore little immediate impact on government borrowing.”
(Reporting by Vidya Ranganathan and Kevin Buckland; Editing by Chizu Nomiyama and Nia Williams)
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