Post by : Rameen Ariff

Japan’s political landscape faces significant uncertainty after the Komeito party announced its exit from the 26-year alliance with the ruling Liberal Democratic Party (LDP). This development comes just days after Sanae Takaichi became the new LDP leader, raising questions about her ability to secure enough support to become the country’s next prime minister.

Komeito’s departure follows Takaichi’s decision to dismiss concerns over a recent campaign funding scandal, which the junior party viewed as unacceptable. Analysts say this makes it more challenging for Takaichi to govern effectively even if she wins the prime ministerial vote next week.

Financial markets reacted cautiously. The yen strengthened by about 1% against the U.S. dollar, partially reversing a 4% decline following Takaichi’s leadership victory on October 8. Investors are now uncertain about Japan’s fiscal outlook as LDP dominance appears weakened without Komeito’s support.

The LDP may lose up to 25 seats without its coalition partner, with the Constitutional Democratic Party (CDP) expected to gain most of these seats, potentially outpacing the LDP in the lower house. This could create further instability, forcing compromises on budgets and fiscal policies, including tax measures and Bank of Japan inflation targets.

The LDP’s internal dynamics also face pressure. With the exit of Komeito, the party’s right-wing factions may gain influence, potentially prompting moderates to consider leaving the party. Experts warn that this political uncertainty could continue for months, keeping investors and citizens alike in a state of limbo.

Takaichi, if she assumes office, may become Japan’s first female prime minister but could face significant challenges in passing legislation and maintaining coalition stability. The coming weeks will be critical for Japan’s political and economic future as parties negotiate and realign in response to this unprecedented shake-up.

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