Japan’s ruling party leadership race kicked off on Thursday, with the weakened grip of party elders enabling a record number of candidates to enter a wide-open contest to steer the nation through a critical period of transition.

Nine leadership hopefuls gave opening remarks at the Liberal Democratic Party's (LDP) headquarters in Tokyo to begin the campaign for the Sept 27 LDP presidential election, including two candidates under the age of 50 and two women. The winner will almost certainly be voted in as the prime minister because of the LDP’s majority in Parliament.

The public don’t get a say in either election, but the most popular candidates in opinion polls are Shigeru Ishiba, a 67-year-old former defence minister, and 43-year-old Shinjiro Koizumi, the youngest candidate and son of a former prime minister.

The candidates highlighted their perceived strengths in their opening statements. Koizumi portrayed himself as an energetic reformer who would spur growth by removing regulations “without sacred cows”. Ishiba spent most of his speech on national security concerns, including a mention of North Korean missiles launched earlier in the day. 

The election comes with Japan at a fragile turning point after the re-emergence of inflation, the first interest rate hikes in 17 years, and the stock market finally revisiting levels not seen since the nation’s 1980s heyday. Japan is also taking on a more active stance on regional security, as both its economy and its defence policy appear to be edging away from outlier status to something more conventional. 

All of the candidates are pledging to defeat deflation and raise incomes as they seek to boost consumption and reinvigorate economic growth, but they differ on the degree of spending and structural reform needed to achieve these goals. The election is set to be the most open vote in decades, due to the demise of influential groups within the party known as factions.

The LDP election is the first since a slush fund scandal that began last year rocked the party. Revelations of secret payments to lawmakers who were part of factions - groups aligned by policy views - led to all but one of the factions being dissolved.

The scandal contributed to Prime Minister Fumio Kishida’s decision not to seek another three-year leadership term, as did his low opinion poll ratings.

In the past, factions would typically put forward a single candidate, or join forces with other factions to support one candidate. Faction bosses made those decisions.

The unravelling of the groups has allowed for a more diverse range of candidates to come forward, including lawmakers with less experience. The election has two of the youngest contenders in recent years: 49-year-old Takayuki Kobayashi and Koizumi. Both have been publicly endorsed by LDP members from more than one former faction.

“Up until now, if a young and inexperienced person wanted to stand, the faction would hold that person back,” said Mieko Nakabayashi, a professor at Waseda University in Tokyo.

In another sign of the weakened influence of senior power brokers, multiple candidates have also emerged from former factions. Yoshimasa Hayashi and Yoko Kamikawa, for instance, were both in the faction headed by Kishida.

Candidates are also having to make better pitches to their colleagues for support, since they can no longer rely on block votes from their factions. The LDP election is a vote among rank-and-file party members and LDP lawmakers. Some LDP lawmakers told Bloomberg they were still undecided about who to vote for. 

“Each candidate’s judgement is being tested, one-by-one,” said Miki Yamada, the vice environment minister.

The decline of factional power may give the winner of the election a freer hand to decide Cabinet positions. That could put better-suited people in positions, leading to better policy execution, some political analysts say.

Traditionally, Cabinet appointments have been allocated to factions that cooperated with the winner in LDP elections. That led to some people taking positions with little or no experience in the field they were given control over. Prime ministers would then draw from a waiting list of candidates from factions when deciding Cabinet reshuffle appointments.

To be sure, factions and their influence over the party haven’t suddenly disappeared. The one faction that remains intact is headed by Deputy Prime Minister Taro Aso. 

In a recent speech, Aso said his faction members would be free to decide who to vote for in the election at least in the first round before a runoff. Other former faction bosses may also still retain significant sway over the voting decisions of former faction members.

Even without the formal existence of factions, candidates will likely still be calling on former faction allies for support and potentially looking to do deals to shore up votes, said Kristi Govella, an associate professor of Japanese politics at Oxford University in the UK.

“A lot of the horse-trading and deal-making will certainly be occurring according to the relationships that have existed, but we just don’t necessarily see it in the same kind of organised fashion,” Govella said.

The decline of factions also isn’t necessarily a good thing if it leads to instability in the party, said Tobias Harris, the founder of Japan Foresight LLC, a political risk advisory. Factions have played a role in the past in ensuring party cohesion, and their decline may lead to more infighting, particularly if a future leader makes a gaffe or other serious misstep, Harris said.

Whoever wins will face an array of major challenges, including decisively steering Japan out of deflation and managing ties with the US, Japan’s main security ally, as Washington has its own leadership transition. 

Junichi Kanda, who served as a parliamentary secretary for finance in the Kishida administration, said he is concerned that the decline of factions means the LDP election is taking on the appearance of a popularity contest. He said it would be risky to pursue only a sense of renewal and change while the Japanese economy faces difficulties, and steady navigation is required in the fields of diplomacy and security.

Kei Okamura, a portfolio manager at Neuberger Berman’s Japanese Equity Investment Department, mentioned that amid growing global uncertainties, Japan’s “political stability” is cited as a reason for investing in the nation from overseas. 

He said the greatest risk for the ruling party and Japan would be a new prime minister stepping down less than a year after initiating reform.

  - Bloomberg