Commencement of the relevant procedures is set to be announced after the party's "comprehensive review" of its 20 July upper house election performance is completed on 2 September, with a senior LDP lawmaker cited as saying that the polling of opinions (which will in principle need to be submitted in writing) is likely to take place on 8 September.
In accordance with the LDP's constitution (see below), an early leadership election will be held if requested by at least 172 out of the 342 people polled (295 LDP Diet members and 47 prefectural chapter representatives).
LDP Constitution, Article 6 “4. If more than half the total of all Party Diet Members and the total of one representative from each Prefectural Party Federation branch request the presidential election before the term of the President expires, the election shall be conducted in the same manner as if the President vacates his or her seat during the presidential term.”
FNN interviews with LDP Diet members to this point have found 67 out of 295 (23%) expressing their intention to request an early election, with 46 (16%) meanwhile signaling that they will not do so and the remaining majority yet to state a position.
Similar polling by Asahi showed around 80% of all LDP lawmakers offering no indication either way. It remains to be seen whether support for an early leadership vote will end up reaching the necessary 172 threshold, with recent opinion polling likely to have made an increasing number of lawmakers at least somewhat more wary of how an "Ishiba ouster" campaign might be perceived by the electorate. Voting stances are of course likely to be impacted by the decision to disclose individual preferences.
As reported by the Yomiuri on 28 August, while LDP Secretary-General Hiroshi Moriyama is said to have told those around him that he cannot fathom reluctance to go on the official record when it comes to such a momentous decision, a younger LDP lawmaker meanwhile characterized the "names will be taken" approach as a deterring tactic given that many might be fearful of losing voter support if they end up being labelled as trouble-making dissenters. Upcoming political calendar and potential market reactions There is in any case little question that the domestic political situation is set to become increasingly heated over the coming weeks. We have therefore taken this opportunity to consider potential market reactions to various milestones along the way. - LDP upper house election post-mortem (29 August & 2 September) and Secretary- General Moriyama's decision on his future The LDP's upper house election review committee is set to report on its findings on 29 August ahead of a "joint plenary meeting" of LDP lawmakers from both chambers of the Diet on 2 September.
If fiscal discipline advocate Moriyama stands down at that time, then markets are liable to envisage a shift towards more expansionary fiscal policy settings —including the possibility of the government and LDP giving more consideration to a consumption tax cut—irrespective of whether or not Ishiba remains at the helm. Markets are already likely to have factored in a Moriyama exit to at least some degree given his previous hints in that direction, but an actual resignation announcement may nevertheless end up further exacerbating negative sentiment vis-à-vis super-long JGBs. Conversely, super-long yields might decline temporarily in the event of Moriyama opting to stay on for the time being. - Polling of preferences on whether or not to hold an early LDP leadership vote (first third or so of September) The next question is whether the polling of preferences at some point during the first third or so of September will see the requisite level of support for truncating Ishiba's term.
If it starts to look as though Ishiba might remain at the helm due to a lack of the necessary numbers, then the initial reaction (setting aside considerations of the longer-term outlook under a Moriyama resignation scenario) might see markets put higher weight on the likelihood of current fiscal and monetary policy stances being maintained (with talk of a consumption tax cut and other fiscal stimulus measures temporarily shelved). Super-long JGB yields would perhaps decline (at least temporarily) under such a scenario, but the stock market might meanwhile switch into "risk off" mode given that its recent strength has likely owed at least something to expectations of a change of leadership. - Early LDP presidential election What if support for an early election does end up reaching the threshold stipulated in the LDP's constitution?
We would then expect the stock market to stage a "risk on" rally in expectation of a change of leadership. If the "reflationist" Sanae Takaichi were to be seen as the frontrunner to succeed Ishiba as Prime Minister, then super-long JGB yields might very well start to face even greater upward pressure amid stronger bond market concerns over fiscal risk. Market reactions would however probably be more limited in the event of (say) Shinjiro Koizumi or Yoshimasa Hayashi being seen as the favorite, reflecting expectations of fiscal and monetary policy settings remaining substantially unchanged.
