Chairman’s Message

<Main Points>

Japan’s Upper House Election will take place on July 20th

The results can have a significant impact on the political landscape

With many uncertainties, the results are hard to predict

The major issue is inflation-related, including the cost of energy

There are limited differences in energy/climate change policies

There is a possible significant impact politically, but a modest impact on energy/climate change policies

1. Japan’s Upper House election on July 20th.

Japan’s Upper House will hold its election on July 20th. Half of the seats, specifically 124 seats, will be put to a vote. The term is 6 years and elections are held every three years.
　The coalition parties, consisting of LDP and Komeito, a Buddhist-backed party, currently hold 141 seats together–114 and 27 respectively–securing a comfortable majority with a margin of 16 seats.
　The coalition parties performed better in the election three years ago, leaving 75 seats (62 for LDP and 13 for Komeito) that are not up for election this year. The seats facing election this year are thus 66 seats together: 52 for LDP and 14 for Komeito.

2. The results can have a significant impact on the political landscape.

Under the Japanese Constitution, the Lower House has stronger authority regarding the authorization of the Cabinet and decisions on the budget. The Upper House has equal power over legislation. No law can pass without the consent of the Upper House. Due to the supremacy of the Lower House, the result of the Upper House Election will not directly lead to a change in the Cabinet or the Prime Minister.
　However, the ruling coalition parties already lost their majority in the Lower House in the previous general election, which took place in October 2024. The ruling coalition parties and Prime Minister Shigeru Ishiba could only maintain their power because the opposition parties could not unite. There are left-wing opposition parties as well as right-wing opposition parties. Prime Minister Ishiba has been working hard to secure support from one of the three major opposition parties to get legislation and the budget approved by the Lower House.
　If the coalition parties can secure 50 seats or more in the upcoming Upper House election, they will succeed in maintaining the majority in the Upper House. Such a result will lead to a status quo or “muddling through” until the next Lower House general election.
　If the coalition parties lose more seats, they will lose the majority in the Upper House. A loss of majority in both Houses will make the management of the Government very challenging. While the necessity to gain support from one of the three major opposition parties for legislation and budget approval is unchanged from the current situation, the need to secure support twice for every decision complicates the policy developments. Additionally, Prime Minister Ishiba will probably have to take responsibility for the loss and resign. An emergency selection process for the leadership of LDP will be conducted with the hope that he or she will be the next Prime Minister. However, the complication is that there is no guarantee that the Lower House will elect the next Prime Minister from the ruling coalition. Thus, a gamble must be taken, assuming that the opposition parties will not be united to select an alternative Prime Minister. If the new Prime Minister is elected from the coalition parties, he or she will probably dissolve the Lower House to call for a general election. The result of this election, which is hard to predict at this point, may lead to a change in power from the coalition parties. Politics in Japan will enter into uncharted waters under this scenario.

3. With many uncertainties, the results of the election are hard to predict.

With the cushion provided by the victory three years ago, the coalition parties only need to keep 50 of the 66 seats up for vote to maintain their majority. This arithmetic does not necessarily reflect the challenge that the coalition parties are facing in the upcoming election.
　The disapproval rate still exceeds the approval rate for the Ishiba Cabinet, according to the poll by NHK. The most recent election held in June for the Tokyo Metropolitan legislature resulted in a major defeat for both LDP and Komeito.
　But there are also bright spots for LDP at the same time. Support for LDP appears to be recovering after the new Agriculture Minister Shinjiro Koizumi, the son of the former Prime Minister Junichiro Koizumi, came in to lead the initiative to contain the rise in the price of rice. The rising opposition party in the general election last October, DPP (The Democratic Party of the People) seems to be losing momentum due to a series of “own goals”. The opposition parties appear to be failing to unite their candidates to run for 32 districts with just one seat. This failure generally benefits LDP, which is the single largest party.
　As 58.2% of the voters claim to be independent, according to JIJI Press, and many voters remain undecided on their vote in the upcoming election, whatever happens in the next few weeks can wildly shift the outcome of the election.

4. The major issues are inflation, rising cost of living, and dropping real income

While Japan has been struggling with deflation for decades after the burst of the bubble in the 90s, inflation is finally surfacing. But inflation has not been welcomed in Japan, just as in any other country. Probably due to the cost-push nature of the inflation caused by the combination of rising global commodity prices and a super cheap yen, people are complaining loudly about the price hike in food and energy. The shortage of rice and rising rice prices, caused by the combination of bad weather, years of misguided policy, aging farmers, and speculation, has been the symbol of inflation, angering many consumers.
　Energy cost has been the second target for anger following the energy crisis and the recent turmoil in the Middle East exacerbated by the super cheap yen. While the Government has been promoting a rise in wages, workers are complaining that wage increases are not keeping up with inflation, resulting in dropping real income.
　On the other hand, climate change is almost nowhere in the policy priorities among the parties, with the exception of the Communist Party, which holds just 8 seats in the Lower House and 11 seats in the Upper House.

　5. Limited differences in energy/climate change policies

As the major political issue is centered around inflation, parties are stressing their policies to deal with inflation and the drop in real income. The coalition parties are promising to pay out grants to households and to lower income taxes. The opposition parties prefer freezing or abolishing the consumption tax. This different approach to increase disposable income is the biggest gap between the ruling coalition parties and the opposition parties.
　To deal with the increase in energy cost, the coalition parties are promising to provide subsidies for fuel and power. The opposition parties are demanding the abolishment of the additional gasoline tax that has been financing road construction for decades.
　These differences in approach reflect the reluctance on the part of the Government not to lose tax revenue permanently while being receptive to providing subsidies as long as they are temporary measures.
　Other than these differences, there are very few differences in energy/climate change policies. One remaining area is nuclear. In addition to LDP, DPP supports building new nuclear power plants. DPP is supported by labor unions representing the power industry. The Innovation Party, one of the three major opposition parties, also appears to be supportive of constructing new nuclear power plants. Komeito, while part of the coalition government, is cautious about constructing new nuclear power plants while accepting the restart of existing nuclear power plants. CDP (The Constitutional Democratic Party), the largest opposition party, is opposed to constructing new nuclear power plants while accepting the restart of existing nuclear power plants. Only the Communist Party, a small opposition party, is against nuclear, demanding the early retirement of existing nuclear power plants.
　As I described above, climate change is not among the major issues highlighted by the major parties. Once again, it is only the Communist Party that is prioritizing the climate change issue.

6. Politics may be affected significantly, but there will be modest changes for energy/climate change policies

The upcoming Upper House election may trigger a chain reaction to transform the political landscape of Japan, especially if a general election should be called. It can also result in a “muddling through” situation with the coalition parties maintaining the majority in the Upper House without a majority in the Lower House. The prospect of politics is very uncertain.
　On the other hand, energy policies are expected to be generally unchanged. The exception may be the approach to lower the cost of energy. The coalition parties prefer subsidies while the opposition parties promise a gasoline tax cut. Even with nuclear, there appears to be a general acceptance of nuclear, including the restart of existing nuclear power plants. The remaining difference is in the construction of new nuclear power plants, but this difference will only be reflected in actual policies in the event that CDP captures power after the possible general election.
　So for most of the readers of this Chairman’s Message, you may rest assured of the continuity of most energy/climate change policies, even though we may have drama in politics during and after the Upper House election.