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Japan’s Liberal Democratic party has agreed to form a coalition with the reformist Japan Innovation party in a deal that paves the way for Sanae Takaichi to become the country’s first female prime minister.

JIP leader Hirofumi Yoshimura told Japanese media on Monday that he had spoken to Takaichi and notified her that his party would join as a coalition partner. “Let’s move Japan forward, together,” Yoshimura said he had urged the LDP leader.

Analysts said the formation of the coalition was a significant shift in Japanese politics, as parliament becomes more fractured and populist parties battle to attract younger voters.

Shares in Tokyo surged on hopes that an incoming Takaichi-led administration will involve more fiscal spending and be broadly supportive of the equity market. The Nikkei 225 Average closed at an all-time high, up more than 3.3 per cent.

While an LDP-JIP partnership does still not command a majority in parliament, it is expected to give Takaichi enough support to be voted into office in a parliamentary vote scheduled for Tuesday. 

The JIP will not take seats in Takaichi’s cabinet but will support the LDP in passing budgets and other legislation.

The LDP’s deal with the JIP, whose main centre of support is the major Japanese city of Osaka, follows the collapse of the ruling party’s 26-year coalition with Komeito.

Tobias Harris, founder of the Japan Foresight consultancy, said the LDP was swapping a well-established if not always satisfactory coalition with Komeito for a partnership that brings the LDP closer to majorities in both houses of parliament.

However, Harris said the JIP might be a more unruly partner for the LDP than Komeito, which he said had more internal discipline.

“The compromises required by both parties to finalise an agreement could set the stage for conflict in the future. The potential for friction over the medium term is considerable,” said Harris.

David Boling, a director at the Eurasia Group, said it was difficult to see an LDP-JIP coalition beating the LDP-Komeito’s 26-year run. But he noted that the LDP and JIP were more ideologically aligned than the LDP and Komeito.

“That bodes well for coalition stability. Komeito’s pacifism acted as a brake on the LDP’s hawkish defence policies, but with the JIP as a partner, both will be stepping on the gas,” said Boling.

The right-leaning JIP has policy overlap with its new partner on several key issues, including support for constitutional reform and the removal of a provisional tax on petrol.

Two people familiar with negotiations said the LDP had also agreed to support several major policies on which the JIP has campaigned — reducing the number of MPs in parliament, and the elevation of Osaka to the official status of Japan’s “second capital”.

Montage image of Sanae Takaichi, Margaret Thatcher, and a line chart

The new coalition will control 231 seats in the 465-seat lower house, and 120 of the 248 seats in the upper house. The mechanics of the prime ministerial vote, and the fact that opposition parties have not coalesced around a rival candidate for prime minister, mean Takaichi is virtually assured of victory.

The LDP is also continuing to hold talks with other small parties to secure the additional parliamentary votes it needs to pass laws.

Takaichi, an arch-conservative acolyte of the late prime minister Shinzo Abe, has hinted strongly that she will prioritise stimulus spending and restoring growth over fiscal discipline.

AloJapan.com