Japanese Prime Minister Shigeru Ishiba Resigns Amid Political and Economic Turmoil

Japanese Prime Minister Shigeru Ishiba announced his resignation on September 7, 2025, following significant electoral defeats that resulted in the ruling Liberal Democratic Party (LDP) losing its majority in both chambers of parliament. This political upheaval has introduced uncertainty regarding Japan's future economic policies, particularly concerning fiscal spending and monetary easing.

Ishiba, 68, assumed office in October 2024, succeeding Fumio Kishida. His tenure was marked by challenges, including rising inflation and internal party divisions. Prior to his premiership, Ishiba held various ministerial positions, including Minister of Defense and Minister of Agriculture, Forestry, and Fisheries.

Shortly after Ishiba took office, the LDP and its coalition partner Komeito lost their majority in the Lower House election. In July 2025, the coalition also failed to secure a majority in the 248-seat Upper House, further destabilizing the government. These defeats were largely driven by public dissatisfaction over rising inflation, particularly surging rice prices, and concerns about the government's economic policies.

The resignation has triggered a leadership contest within the LDP. Two prominent candidates have emerged:

• Sanae Takaichi: A conservative politician known for her advocacy of increased government spending and maintaining low interest rates. Takaichi's economic proposals align with Abenomics-style policies, emphasizing aggressive fiscal spending and monetary easing.

• Shinjirō Koizumi: A centrist and the current Minister of Agriculture, Forestry, and Fisheries. Koizumi has gained popularity for addressing rice shortages and is perceived as more fiscally responsible. His approach contrasts with Takaichi's, focusing on balanced economic policies.

The political upheaval has had mixed effects on financial markets:

• Stock Market: Japanese stocks reached an all-time high following Ishiba's resignation. The Tokyo Stock Price Index (Topix) rose approximately 1%, driven by a weakening yen and investor optimism about potential economic stimulus under new leadership.

• Bond Market: Concerns over increased fiscal spending led to a rise in long-term bond yields. The 30-year Japanese government bond yield matched a previous high at 3.285%, reflecting investor anxiety over the country's escalating debt, which now exceeds 250% of GDP.

Japan has been grappling with persistent inflation, particularly in essential commodities like rice. Long-standing agricultural policies and import tariffs aimed at protecting domestic farmers have contributed to rising prices, leading to public discontent. Additionally, Japan's debt-to-GDP ratio has surpassed 250%, raising concerns about fiscal sustainability.

Ishiba's resignation underscores the vulnerability of the LDP and raises concerns about a return to Japan's era of short-lived prime ministers, which could undermine political stability and economic confidence. The leadership contest and subsequent policy directions will significantly influence Japan's economic trajectory and its approach to addressing inflation and fiscal challenges.

Ishiba's resignation marks the third consecutive Japanese prime minister to step down within five years, following Yoshihide Suga in 2021 and Fumio Kishida in 2024. This pattern reflects ongoing political instability and challenges in maintaining public support amid economic difficulties.

Japan stands at a crossroads, with its political landscape in flux and economic policies hanging in the balance. The outcome of the LDP's leadership contest will significantly influence the nation's approach to addressing inflation, fiscal challenges, and overall economic trajectory. As investors and citizens await clarity, the interplay between governance and economic performance remains a focal point for the world's third-largest economy.