Japanese snap elections: logic or gamble? - Rabobank

Japanese premier Shinzo Abe called on September 22 for snap lower house elections to be held on October 22 ‐ mainly on the back of recent improvements in Abe’s approval ratings after the low July levels, notes Björn Giesbergen, Research Analyst at Rabobank.

Key Quotes

“Abe wants to redeem his improved cabinet approval ratings, making his Liberal Democratic Party ﴾LDP﴿ the biggest. This would give him better chances to maintain his position as prime minister beyond 2018. In July, approval ratings nosedived after he and his party were accused of two scandals which were seen as contributing to the huge LDP loss in the July 2nd metropolitan elections in Tokyo. Since then, approval ratings have been on an increasing path and the most recent ones even show that approval has exceeded non‐approval.”

“Despite these ratings, a disorganized and expected weak opposition would additionally benefit Abe’s LDP‐Komeito coalition.”

“The PM and his cabinet additionally benefit from the tailwind of six consecutive quarters of economic growth and historically low unemployment levels. Although Japan’s Q2 GDP growth rate was cut by 0.4ppt to 0.6% q/q –mainly resulting from business investments which had been much weaker than previously thought, it still was the highest quarterly growth rate of all the six quarters. Meanwhile, the unemployment rate stands at a 23‐year low of 2.8% and the jobs‐to‐applicants ratio at 1.52, its highest level since 1974 – both signalling ongoing tightness in the labour market. Abe may see this as a good opportunity to claim success of his economic policies.”

“Although we still expect Abe’s coalition to win the election by majority, the disbanding of Japan’s largest opposition party and the subsequent founding of Yuriko Koike’s new Party of Hope can turn the snap election from initial logic to a gamble.”