Japanese voters decide the fate of Prime Minister Shigeru Ishiba’s government on Sunday in an election that is expected to punish his coalition over a funding scandal and inflation, potentially ending a decade of dominance by his Liberal Party. Democrat.

The LDP and its long-time partner Komeito will take a beating from voters with the coalition potentially losing its parliamentary majority, opinion polls suggest, as Japan grapples with rising costs of living and increasingly tense relations with neighboring China.

Losing the majority in the lower house would force Ishiba, in power for only a month, to negotiate power sharing with smaller parties, leading to uncertainty in some policy areas, although no polls predict the PLD would be ousted of power.

Political wrangling could shake markets and pose a headache for the Bank of Japan, if Ishiba chooses a partner who favors keeping interest rates near zero while the central bank wants to gradually raise them.

“He will be significantly weakened as a leader, his party will be weakened in the policies he particularly wants to focus on, because the arrival of a coalition partner will force him to make certain compromises with that party, regardless of his party to be,” said Jeffrey Hall, an expert on Japanese politics at Kanda University of International Studies.

The PLD could lose as many as 50 of its 247 seats in the lower house and Komeito could fall below 30, giving the coalition fewer than the 233 needed for a majority, an Asahi newspaper investigation suggested this week last.

“It’s basically a ‘sell Japan’ scenario” as investors consider how the outcome might affect fiscal and monetary policy, said Naka Matsuzawa, chief macro strategist at Nomura Securities. Japanese stocks fell 2.7% last week on the benchmark Nikkei index.

The LDP will remain by far the largest force in Parliament, polls show, but it could lose many votes to the number two party, the opposition Constitutional Democratic Party of Japan, which ousted the LDP in 2009, said Asahi, believing that the CDPJ could win. up to 140 places.

COALITION HEADACHES

Nine days before U.S. voters choose a new president, Japan’s general election will likely show Ishiba miscalculated in reaching out to voters for a verdict on the LDP’s scandal over unregistered fundraising donations .

After purging some LDP members, Ishiba says he considers the matter closed and has not ruled out giving government posts to disgraced politicians, which could anger voters, experts say.

Potential coalition partners could be the Democratic People’s Party (DPP) and the Japan Innovation Party, but both propose policies at odds with the LDP line.

The DPP calls for halving Japan’s 10% sales tax until real wages rise, a policy that is not supported by the LDP, while the Innovation Party has pledged to tighten the rules on donations to clean up the policy.

The Innovation Party opposes further rate hikes, and the DPP chief said the central bank may have been hasty in raising rates, while the BOJ wants to gradually wean the world’s fourth-largest economy off several decades of monetary stimulus.

Nearly 40% of voters say their main concern is the economy and the cost of living, according to a poll by public broadcaster NHK. The study reveals that 28% want a tax reduction and 21% hope for a continued increase in their salaries.

Various parties have pledged to raise wages, a move that could win votes but would also threaten small businesses struggling to keep up with rising costs.