The conventional wisdom is that the defeat of the Liberal Democratic Party (LDP) weakens the prospects for economic reform, at least for a while. That's because reform can only be done via a strong Prime Minister committed to reform.

 

            There's a lot of truth in this argument, particularly in the near term. Nonetheless, if the LDP's weakness continues through next year's Upper House election, and beyond, increased competition among the parties could make them more sensitive to voter needs. This, in turn, opens the door for more economic reform.

 

            Consider the record: On the one hand, Japan has seen a lot less real reform in the past decade than has been claimed for it, even though Shinzo Abe was one of the strongest Prime Ministers in modern history. On the other hand, many of Japan's most impactful reforms have occurred at times when the LDP had good reason to fear being ousted, or when the opposition had control of the Upper House and the LDP controlled the Lower House.

 

            The point is illuminated by the current negotiations between the LDP and the Democratic Party for the People (DPFP) over tax cuts that would increase householders' take-home income.

 

For details, see https://richardkatz.substack.com/p/contrarian-musings-could-ldp-defeat

 

Richard Katz

The Contest For Japan's Economic Future