Japan Ruling Bloc Hits Setback in Tokyo Vote Ahead of Olympics

(Bloomberg) -- Japan's ruling coalition fell short of a majority in a Tokyo assembly vote, dealing a blow to Prime Minister Yoshihide Suga, who is expected to call a general election after the Olympics, which start in about three weeks.

Suga's Liberal Democratic Party, which previously had 25 seats in the 127-seat assembly, took 33 spots in the Sunday election, according to data from public broadcaster NHK. Coalition partner Komeito stayed at 23 seats, with the two falling short of the 64 needed to secure a majority. The main national opposition force, the Constitutional Democratic Party, almost doubled its representation from eight to 15 seats, NHK said.

The results indicate some fragility for the government as virus numbers rise, which may prompt the ruling coalition to advance plans for more spending ahead of a general election due by autumn.

“Voters' distrust of the government's virus policies was stronger than expected,” said Bloomberg Economist Yuki Masujima. “This increases the chances that Suga's government will press ahead with discussing a large extra budget of as much as 30 trillion yen ($270 billion) before the general election.”

The persistent impact of the pandemic has caused analysts to rule out a strong economic rebound in the second quarter as restrictions continue to hit the service sector. The LDP is poised to compile plans for a stimulus package in the summer and pass an extra budget to fund it after the election, the Sankei newspaper reported Sunday night.

The Nikkei 225 fell 0.6% in morning trade on worries the election results could indicate political uncertainty. But Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute, said if the ruling bloc pushes economy-boosting measures ahead of the national vote, it could be a positive for stocks.

Suga said he would accept with humility the failure to reach a majority, telling reporters Monday he would analyze the results and prepare for the next election.

The setback for Suga's bloc came amid accelerating infections in Tokyo, which have renewed concerns about a potential surge triggered by the Olympics, which open July 23.

Tokyoites First, which had called for holding the Olympics without spectators to reduce virus risk, saw its seats drop from 45 to 31, according to NHK, remaining almost as large as the LDP.

In the last assembly vote in 2017, the LDP lost to what was then an upstart party riding on the coattails of its founder, Tokyo Governor Yuriko Koike. The LDP and Komeito suffered minimal seat losses in a national election a few months later, keeping their strong majority in powerful lower house of parliament.

Suga has pressed ahead with preparations for the Olympics despite widespread concern about staging the global sports spectacle during a pandemic. Any serious fallout from the games could mean Suga joins a long list of short-serving Japanese premiers, given voters are already disenchanted with the games.

NHK's exit polling found 36% of respondents said the Olympics should be canceled or postponed, while 38% said the event should be held without spectators. About 21% said they supported the current plans for the games.

Suga saw his initially high approval crumble after he took office in September amid scandals and criticism of his handling of the coronavirus. Support has crept up slightly as the vaccine rollout sped up. While Japan's initially delayed immunization rollout has accelerated, only 12.7% of the population is fully inoculated, leaving many people at risk. Signs of a slowdown in the program are also emerging.

“Depending on the spread of the coronavirus after the Olympics, votes may flow to the CDP,” said economist Hiroaki Muto at Sumitomo Life Insurance Co., of the upcoming general election. “The LDP may not win as convincingly as they expected,” he added, saying that prospect could prompt the government to match the CDP's calls for about 33 trillion yen in extra spending.

But with the CDP polling at around 5% in support rates, the group has little chance in the general election of unseating Suga's ruling bloc, which has a deeper bench of candidates and a much better funded political machine.

Sunday's election will not affect Koike's position as Tokyo governor, to which she was re-elected for a second four-year term in 2020. After staying out of the public eye for more than a week citing exhaustion, Koike appeared at several Tokyo First events on Saturday, the last day of campaigning.

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