Will Japan's Nigel Farage break its economy?

Telegraph

18-07-2025

Japan goes to the polls on Sunday to vote in its upper house elections. The country's Liberal Democratic Party has governed almost continuously since the Second World War.
But, as with the rest of the world, populism is now shaking the country's politics.
Sohei Kamiya, a youthful-looking, sharp-suited 47-year-old some are calling 'the Japanese Nigel Farage', has steered his start-up party Sanseito to third place in many opinion polls.
He is campaigning on an anti-immigrant, anti-woke and anti-net-zero platform. He is also promising generous giveaways for voters who are under pressure from a cost of living crisis.
Kamiya's surge is worrying bond investors, sending Tokyo's long-term borrowing costs to record highs. Japan is already heavily indebted and the social media savvy politician's startling rise has increased the chances of the budget blowout, with echoes of the British market meltdown of late 2022.
'Increasingly there is potential to compare this with the UK's Liz Truss moment,' says Masayuki Nakajima, a senior strategist at Mizuho Bank.
'I'd like to deny this completely but part of me sees it this way, because many politicians are advocating a populist agenda without credible funding sources.'
Voters are fuming at the cost of living, with inflation stuck at levels seldom seen since the 1980s. Kamiya's answer: a more than 16tn Japanese yen (£80bn) plan to abolish consumption taxes.
In response, other parties are now also promising tax cuts or cash handouts costing anything up to 15tn yen.
'Japanese First'
A former supermarket manager and English teacher, Kamiya burst on to the Japanese political scene in 2022, winning a seat two years after founding Sanseito.
A decade earlier, he had stood for election with Prime Minister Shigeru Ishiba's Liberals. But he became disaffected with mainstream politics and began to cultivate a YouTube following, mostly among young men.
In his videos, ultra-nationalist and anti-globalisation rhetoric sits alongside health and wellbeing tips and conspiracy theories about Covid vaccines.
Many of his 400,000 followers pay extra to access 'the real truth' about 'the deep state' and the sinister elite forces that he says are ranged against him.
His online success led to the founding in 2020 of Sanseito, which in English he calls the 'Do It Yourself Party'. Sanseito claims to have 80,000 members and a YouTube channel with 270,000 subscribers. It has gradually begun winning seats in local and now national elections.
'The Japanese voter is not apathetic, as some tend to believe. If anything, they are highly committed and passionate about their communities and country and are very concerned about the direction Japan is heading,' he told The Japan Times last week.
In keeping with many parties on the populist Right, the prospect of electoral success has prompted him to tone down the extremes and broaden his pitch.
Like Farage, he's now offering tax cuts and social spending aimed at the lower end of the socioeconomic ladder, while also emulating Trump's approach to immigration in a stance he calls 'Japanese First'.
Japan keeps a relatively tight grip on immigration. Foreign-born residents still comprise just 3pc of the population, compared with 16pc in Britain.
But the number has grown sharply since 2010, as Japan's ageing society demands more workers it cannot find at home. There are 3.8m foreign-born people living there, predominantly from China, Vietnam, Korea and the Philippines.
Kamiya talks about putting curbs on arrivals and time limits on how long skilled migrants can stay. He also wants more policing of immigrants who leave their approved work sites and 'turn to criminal organisations'.
Ishiba is now playing catch-up. This week the prime minister announced a new agency to coordinate measures across government that would clamp down on foreigners' ability to do anything from obtaining a driver's licence to buying a house.
He said the new so-called 'control tower' was being launched because 'the public feels uneasy and cheated'.
Market jitters
However, it's Kamiya's campaign to slash taxes that is worrying markets.
In a country where government debt is already more than 200pc of GDP, the lavish spending pledges have foreign investors worried that Japan is in danger of driving its public finances off a cliff.
Japan's 20-year and 30-year bond yields were this week at their highest levels this century and the 40-year yield hit a record. Even the benchmark 10-year yield was at levels last seen in the 2008 to 2009 financial crisis.
The election couldn't come at a worse time for Prime Minister Ishiba. On Friday, he hosted Scott Bessent, the US treasury secretary, in Tokyo with President Donald Trump seemingly ready to give up on a trade deal and hit Japan with 25pc tariffs.
If Trump targets Japanese exports and borrowing costs stay high, it will become more difficult to keep the economy growing – the easiest way to pay for extravagant promises.
Ishiba's Liberals are making the most parsimonious offer to voters: a 20,000 yen handout to every man, woman and child, costing 3.5 trillion yen, or 0.6pc of GDP.
But as his party slips in the polls, expectations are growing that he and his coalition partner party Komeito might fall short of the 50 seats required to maintain his upper house majority.
'The specific worry investors have with this election is that the governing coalition is likely to lose ground and may lose its majority – so it may have to take on a smaller third party that may require as its price tax cuts,' says Duncan Wrigley, of Pantheon Macroeconomics.
'That would undermine the fiscal position of the Japanese government, which is much more overextended than other major governments. So if the cost of borrowing does go up, that could lead to a crisis for the Japanese government fairly swiftly, if it's not managed carefully.'
Mainstream cynicism
Ishiba is to some extent the author of his own misfortune, having pronounced in May that his government's fiscal position was 'worse than Greece'.
He was trying to warn his rivals, and the wider public, against unaffordable tax cuts. But his words sent a tremor of alarm through bond markets that were already spooked by budget blowouts in the US, Britain, France and elsewhere.
Ishiba's own spending proposal would be a one-off to help tide the disgruntled Japanese over until inflation eases. But his relative fiscal sobriety might count for little if he needs a new coalition partner.
The two most likely contenders – the Japan Innovation Party (Ishin) and the Democratic Party for the People – are demanding tax cuts that would cost 0.8pc and 2.4pc of GDP, respectively.
Older voters are sticking with the Liberals, but younger Japanese are flocking to these fiscally free-wheeling alternatives.
If Ishiba performs particularly badly in Sunday's upper house election, he may have to step down. That would make it near impossible for Tokyo to pull off a trade deal with Trump and would lead to months more of uncertainty – and potentially a general election.
The biggest beneficiary could be Kamiya. Sanseito has only two of the 248 seats in the upper house and three in the 465-seat lower house. The polls suggest Kamiya might this weekend add between seven and 14 to that total.
Even if Ishiba clings on to office and also lands a trade deal with Trump, voters' disaffection is unlikely to ebb. The economy is slowing, while inflation and interest rates are sticky. The population is ageing, wage growth is flat and cynicism about mainstream politics is growing.
That's fertile ground for Kamiya – but less cheering for foreign bondholders.
For now, investors hope Japan will muddle on.
'I feel that Japan's fiscal risks are somewhat overstated,' says Mizuho's Nakajima. 'There is a longer-term risk, but it might be 10 or 20 years away. It is not as if Japan is on the brink of fiscal collapse today or tomorrow.'