ISLAMABAD: Japan’s yen weakened and stocks surged on Monday after Prime Minister Shigeru Ishiba resigned, triggering a political shake-up and speculation that his successor could pursue more aggressive fiscal stimulus in the world’s most indebted advanced economy.
Ishiba stepped down on Sunday following a series of election defeats that cost his ruling coalition its majority in both houses of parliament. Citing public frustration over rising living costs, Ishiba announced that the Liberal Democratic Party (LDP) would hold an emergency leadership election, reportedly scheduled for October 4, according to broadcaster TBS.
Leadership contest begins
Former Foreign Minister Toshimitsu Motegi was the first to officially enter the race to succeed Ishiba. Speaking to reporters, the 69-year-old said, “The LDP is facing its worst crisis since its founding. We must unite quickly to tackle our serious challenges at home and abroad and move the country forward.”
Chief Cabinet Secretary Yoshimasa Hayashi is also expected to run, according to a source close to the government.
High-stakes candidates
The race's front-runners are widely seen as LDP veteran Sanae Takaichi and Shinjiro Koizumi, the son of former Prime Minister Junichiro Koizumi, who previously served as agriculture minister under Ishiba. Takaichi, 64, could become Japan’s first female leader, while Koizumi, 44, would be the youngest prime minister in the modern era.
Neither has formally declared candidacy, but both placed second and third in the party’s previous leadership contest in September 2024. "All indications are that it will come down to them facing off against each other," said Jeffrey Hall, a lecturer in Japanese studies at Kanda University of International Studies.
Market reactions and economic stakes
Takaichi, known for her nationalist views and opposition to Bank of Japan (BOJ) interest rate hikes, is calling for expanded government spending to support Japan’s fragile recovery. Her potential leadership has markets anticipating a pause or even reversal in monetary tightening efforts.
As a result, money markets now see just a 20 percent chance of a BOJ rate hike by the end of October, down from 46 percent a week earlier, according to Reuters data.
The Nikkei 225 stock index surged on the news, rising more than 800 points, or about 1.9 percent, in early trading Monday. Analysts said investors are attempting to position themselves ahead of potential economic policy shifts under a new administration.
The yen, meanwhile, dropped sharply to the 148-per-dollar level, down from the mid-147 range late last week. Analysts attributed the decline to political uncertainty and the likelihood of more dovish fiscal and monetary policies.
Outlook
This marks the latest political upheaval in Japan’s already volatile landscape. With the leadership election looming, global investors and domestic stakeholders alike are watching closely to see which direction the country’s next government will take and how it could shape Japan’s economic and geopolitical future.
