Japanese Prime Minister Shigeru Ishiba resigned on Sunday, throwing the world’s fourth-largest economy into a fresh period of political uncertainty.
The 68-year-old leader announced his departure just days after finalising a trade deal with the United States that secured tariff relief from President Donald Trump. At a press conference, Ishiba said he must take responsibility for a series of crushing election defeats that stripped his ruling coalition of its majority in both houses of parliament.
“Japan has cleared a major hurdle with the trade agreement,” Ishiba said, his voice wavering. “I would like to pass the baton to the next generation.”
The Liberal Democratic Party (LDP), which has dominated Japanese politics for most of the post-war era, will hold an emergency leadership race. Ishiba will remain in office until a successor is chosen.
Who’s next? Koizumi or Takaichi lead the pack
Two names stand out as possible replacements: Sanae Takaichi, a veteran LDP figure known for supporting aggressive government spending and opposing sharp interest rate hikes, and Shinjiro Koizumi, the popular farm minister and son of a former prime minister. Ishiba narrowly defeated Takaichi in last year’s leadership runoff.
Markets are already jittery. The yen and Japanese government bonds sold off last week, with long-term bond yields hitting record highs. Analysts warn that Takaichi’s policy stance could trigger more market volatility.
“Given the pressure on Ishiba after repeated election losses, his resignation was inevitable,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “Koizumi and Takaichi are the most likely successors.”
Risk of snap elections
The LDP’s new leader will not automatically become prime minister because the party lost its parliamentary majority, though it remains the largest bloc in the lower house. Analysts say the next leader may call a snap election to strengthen their mandate.
That could reshape Japan’s political landscape. The far-right Sanseito party made significant gains in July, giving once-fringe nationalist and anti-immigration ideas a bigger platform. Yet a Kyodo News poll on Sunday found that 55 percent of voters do not want an early election.
Michael Brown, a strategist at Pepper stone, said markets are bracing for more pressure on the yen. “Investors now have to price in greater political risk, not only the leadership contest but also the possibility of a general election,” he said.
Ishiba’s short and stormy tenure
Ishiba, a longtime outsider within the LDP, only became leader on his fifth attempt last September. His time in office was dominated by economic struggles, soaring living costs, and the challenge of Trump’s tariffs, particularly on Japan’s auto industry.
The trade deal he signed included $550 billion in Japanese investments in exchange for lower tariffs. He urged his successor to see the deal through and continue pushing wage growth to ease voter frustration over rising prices.
Ishiba also warned of growing security threats, citing the recent joint appearance of Chinese, Russian, and North Korean leaders at a military parade in Beijing.
Business and voters call for stability
Japan’s top business lobby, Keidanren, urged swift action. “There is no time to lose,” said chairman Yoshinobu Tsutsui. “We hope the new leader will foster unity, stabilise politics, and move quickly on key policies.”
Many voters echoed that concern. “With all the turmoil over tariffs, I hope the next prime minister will be someone who can handle diplomacy better,” said Maki Utsuno, a 48-year-old researcher in Tokyo.
