Japan’s Prime Minister Shigeru Ishiba on 7 September announced his resignation, a move that could usher in a period of political uncertainty and policy paralysis in the world’s fourth-largest economy. Ishiba, the country’s third prime minister in five years, has directed the ruling Liberal Democratic Party (LDP) to hold an emergency leadership election and confirmed at a press conference that he would remain in office until a successor is chosen.
Ishiba, who became the leader of the LDP in September last year, said that he was stepping down to prevent deeper divisions within the party. Shortly after assuming power, the LDP, the party which has dominated Japanese politics for most of the post-war era, and its coalition partner Komeito lost their majority in a Lower House election. Following his drubbing, the ruling coalition also failed to secure a majority in the Upper House election held in July this year.
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The back-to-back electoral loses were attributed to a growing frustration among voters over a host of issues, the primary being rising living costs. Ishiba’s tenure was marked by persistent inflation, which has remained above two per cent for three years, a political finance scandal, and a government-induced rice shortage. These challenges, coupled with the rise of right-wing populism at home and growing unpredictability from Japan’s key ally, the United States, defined his short and turbulent leadership.
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Until Sunday’s announcement, Ishiba had resisted pressure to step down following July’s Upper House defeat, focusing instead on securing a trade deal with the US. That agreement, finalised last week, commits Japan to $550 billion in investments in America in exchange for reduced US tariffs, cutting automotive duties from 25 per cent to 15 per cent. However, political uncertainty surrounding Ishiba’s leadership has already rattled Japanese financial markets, with the yen and government bonds selling off.
Finding Ishiba’s replacement appears to be a complicated exercise. In Japan, the leader of the ruling party automatically becomes the prime minister. However, with both the LDP and its coalition partner now lacking majorities in the parliament, there is no guarantee that the next LDP leader will by default become the prime minister. Analysts are of the view that the new leader may need to call a snap election to secure legitimacy.
A new leadership contest could further strain an economy already affected by US tariffs. However, markets are more concerned about the possibility of Ishiba being succeeded by a proponent of liberal fiscal and monetary policies, like LDP veteran Sanae Takaichi, who has openly criticized the Bank of Japan’s interest rate hikes. Ishiba narrowly won against Takaichi in last year’s LDP leadership runoff. Another potential successor is Shinjiro Koizumi, the charismatic political heir who has gained attention as Ishiba’s agriculture minister, working to address rising prices. Meanwhile, the Far-Right Sanseito party has gained momentum, moving once-fringe, anti-immigration views into the mainstream of Japanese politics.
Ishiba is the third Japanese leader to resign since Shinzo Abe, the country’s longest-serving prime minister, in 2020. Abe’s assassination in 2022 left behind a political void that the ruling party has struggled to fully address to this date. Given the current geopolitical environment, the sooner Japan resolves the leadership crisis the better.
