Scenario 1 (probability: ~60%): If LDP–Ishin wins 233-309 seats, the coalition would hold a simple majority, enough to control the lower house and pass most legislation. Without a supermajority, the government would still need to negotiate with the upper house or opposition parties on certain bills. Passage of the FY2026 budget might face some delays but is broadly expected to proceed. Popular measures with cross-party support, such as proposals to cut the food consumption tax to ease household costs, would likely remain unaffected. In financial markets, the “Takaichi trades” would probably maintain modest momentum, reflecting confidence in policy continuity.
Scenario 2 (probability: ~30%): If LDP–Ishin wins ≥ 310 seats, the coalition would secure a 2/3 supermajority in the lower house. In Japan’s parliamentary system, a 2/3 majority allows the lower house to override decisions by the upper house and repass legislation even if the upper house rejects it. Such a decisive victory would boost expectations that the government can enact major legislation with minimal resistance. Markets would likely interpret this as strong support for expansionary fiscal policies, reinforcing the “Takaichi trades,” leading to higher JGB yields and a weaker JPY.
Scenario 3 (probability: ~10%): If LDP–Ishin wins < 233 seats, Prime Minister Takaichi may resign. The LDP–Ishin bloc would need to seek new alliances with smaller parties or attempt to operate as a minority government, potentially resulting in parliamentary gridlock and heightened political uncertainty. Financial markets could react by unwinding the “Takaichi trades,” initially leading to lower JGB yields and a stronger JPY. Increased volatility in JGB and JPY markets could follow as investors reassess political risks and economic policy direction.
Ma Tieying 馬鐵英, CFA
Senior Economist - Japan, South Korea, & Taiwan 經濟學家 - 日本, 南韓及台灣
[email protected]
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