Japanese Prime Minister Shigeru Ishiba Resigns

By Yuka Obayashi, Nobuhiro Kubo and Leika Kihara

TOKYO (Reuters) – Japanese Prime Minister Shigeru Ishiba resigned on Sunday, heralding a period of policy uncertainty at a precarious time for Japan’s economy, the world’s fourth-largest.

After finalizing a trade deal with the United States aimed at reducing President Donald Trump’s tariffs, Ishiba, 68, took responsibility for a series of election losses at a press conference.

Since his ascension less than a year ago, Ishiba has witnessed his ruling coalition lose majorities in both houses of parliament, amid public discontent regarding rising living costs. He requested his Liberal Democratic Party (LDP), which has predominantly ruled Japan post-war, to initiate an emergency leadership contest, stating he would continue his duties until a successor is chosen.

> “With Japan having signed the trade agreement and the president having signed the executive order, we have passed a key hurdle,” Ishiba said, his voice choked with emotion. “I would like to pass the baton to the next generation.”

Calls for his resignation intensified following July’s upper house election losses. The LDP was set to vote on whether to conduct an extraordinary leadership election on Monday.

Successors

Political uncertainty led to a sell-off in Japan’s yen and government bonds last week, with 30-year bond yields hitting a record high on Wednesday. Investors are now considering the implications of Ishiba being replaced by advocates of looser fiscal and monetary policies. LDP veteran Sanae Takaichi, who has criticized the Bank of Japan’s interest rate hikes, is a potential successor alongside Shinjiro Koizumi, Ishiba’s prominent farm minister known for tackling soaring prices.

Kazutaka Maeda, an economist at Meiji Yasuda Research Institute, noted, “Given the political pressure mounting on Ishiba after the LDP’s repeated election losses, his resignation was inevitable.”

The next LDP president’s ascent to prime minister is probable but not guaranteed, as the ruling coalition has lost its parliamentary majority. Analysts suggest the new leader may call for a snap election to secure a mandate. Although the opposition remains fragmented, the far-right, anti-immigration Sanseito party made significant gains in July’s elections, pushing once-fringe ideas into mainstream politics.

Nearly 55% of respondents in a Kyodo news agency poll indicated no need for an early election.

Michael Brown, a senior research strategist at Pepperstone, anticipates continued selling pressure on yen and long-dated bonds, attributing this to heightened political risk from the LDP leadership contest and a potential general election request from the new leader.

Achievements and Concerns

Ishiba, who became LDP leader on his fifth attempt last September, concluded his brief tenure by finalizing the trade deal with Japan’s largest trading partner, promising $550 billion of investments in return for tariff reductions.

Faced with tariffs, especially on Japan’s automotive sector that led to a downgraded growth outlook, Ishiba expressed hope that his successor would ensure the agreement is executed and that Japan continues to foster wage growth to address public concerns about living costs.

He also raised alarms about the security environment his successor will inherit, pointing to a notable meeting of Chinese, Russian, and North Korean leaders in Beijing for a military parade last week.

Yoshinobu Tsutsui, chairman of Japan’s largest business lobby, Keidanren, stressed that there was “no time to lose” amid growing domestic and international challenges.

> “We hope the new leader will foster unity within the party, establish stable political conditions, and swiftly implement necessary policies,” Tsutsui said.

Some voters share this sentiment, wishing for a steady hand in uncertain times.

“With all the turmoil around tariffs right now, I hope the next prime minister will be someone who can properly manage the tariff issues and handle diplomacy more effectively,” said Maki Utsuno, a 48-year-old chemistry researcher, outside a busy Tokyo train station.