Investing.com -- Japan is set to hold a general election on Sunday as new Prime Minister Shigeru Ishiba looks to solidify his public mandate following an unexpected victory in a party leadership conference in September.
Analysts have suggested that Ishiba's decision to call the snap election a year before it is required could be part of an effort to consolidate his power within the Liberal Democratic party (LDP), which has struggled with waning approval ratings during a time of high living costs and tepid wage growth. Opinion polls now show Ishiba's party could lose seats to the opposition in the ballot.
Ishiba is attempting to piece together a fractured LDP and re-establish public trust in the party, which has been hit by a recent scandal over undocumented funds that eventually led to the resignation of former Japanese Prime Minister Fumio Kishida.
LDP still retains a majority in the 465-seat lower house of Japan's House of Representatives and remains Japan's most popular party -- albeit in a deeply fragmented political landscape.
A recent survey from the Asahi newspaper indicated that the LDP could lose 50 of the 247 seats it currently has in the lower house. The Constitutional Democratic Party, the LDP's main rival, could gain as many as 140 seats, up from its current tally of 98, the Asahi survey showed.
Such an event could severely weaken Ishiba and the LDP's ability to navigate a string of economic and demographic challenges currently facing Japan, analysts say.
Officials in Japan are attempting to re-normalize some of the country's policies following multiple years of deflation and an ultra-loose monetary stance. Meanwhile, Japan's dwindling working-age population is under pressure to support a growing number of retirees.
Strategists at UBS said, with the LDP widely tipped to maintain its majority, they do not expect Japan's election will provide a boost to the country's equity market.
However, if the ruling coalition fails to hold on to its majority, a coalition with independent members could be formed or a new alliance with the Democratic Party for the People could be considered, the analysts added.
"[S]hould there be any negative impact on the stock market, it is likely to be only for the short term -- until the makeup of [Japan's new] coalition becomes clear," the UBS analysts Chisa Kobayashi and Daiju Aoki in a note to clients earlier this week.