ishiba resigns: what's next for japan's economy and global trade?

2025-09-07 general

tokyo, Sunday, 7 September 2025.
prime minister ishiba’s sudden resignation throws japan into political turmoil. facing internal pressure after recent electoral losses, ishiba steps down to avoid a party split. this move triggers a leadership election within the ldp, potentially reshaping japan’s approach to economic policy and international trade. the political uncertainty could impact japan’s economic policies and its role in the global semiconductor supply chain, potentially affecting companies like tsmc that have significant investments and operations in japan. markets are closely watching potential shifts in fiscal and monetary policy.

the backdrop to ishiba’s resignation

Ishiba’s decision to resign comes after a series of setbacks, including the LDP’s failure to secure a majority in the July 2025 House of Councillors election [2][4]. This marked the first time since the LDP’s founding in 1955 that the ruling coalition lost its majority in both houses of the Diet [4]. Pressure mounted from within the LDP, with calls for Ishiba to step down and take responsibility for the upper house loss [3]. Yoshihide Suga, the Vice President, and Shinjiro Koizumi, the Minister of Agriculture, reportedly urged Ishiba to resign early [2]. These factors contributed to Ishiba’s decision to resign and avoid further party division [3].

market reactions and yen volatility

The news of Ishiba’s impending resignation has already begun to impact financial markets. Last week, concerns about political uncertainty triggered a sell-off in the yen and Japanese government bonds [3]. The yield on the 30-year bond reached a record high on Wednesday [3]. Bloomberg reported that the yen weakened against the dollar by 0.3% last week [5]. Analysts anticipate further downward pressure on the yen when Asian markets open on Monday [5]. The market had largely priced in the possibility that Ishiba would not maintain his position long term, but this news introduces further instability [5].

potential policy shifts and successors

The upcoming leadership election within the LDP raises the prospect of significant policy changes. Sanae Takaichi, who narrowly lost to Ishiba in the previous LDP leadership run-off, is a potential successor [3]. Takaichi has openly criticized the Bank of Japan’s interest rate hikes and advocates for looser fiscal and monetary policy [3]. Other potential candidates include Koizumi, Hayashi, and Kobayashi [5]. T&D Asset Management’s Namioka anticipates a repeat of last year’s leadership election, making market movements difficult to predict, but expects super-long-term interest rates to rise due to concerns about fiscal loosening [5].

implications for trade and investment

Ishiba’s resignation occurs shortly after finalizing a trade deal with the United States, where Japan pledged $550 billion in investments in exchange for lower tariffs on its auto sector [3]. The new leadership could potentially alter the course of this agreement. The political uncertainty may also affect foreign direct investment and Japan’s role in global supply chains [5]. Bloomberg noted that while the policy paralysis could hurt the economy due to existing U.S. tariffs, markets are more focused on the possibility of Ishiba being replaced by someone favoring looser fiscal policy [3].

Bronnen

semiconductor supply chain political instability