Japan’s Prime Minister Fumio Kishida announced that he will step down next month due to public dissatisfaction over political scandals and rising living costs during his three-year term. This decision will trigger a contest to replace him.
The Liberal Democratic Party (LDP) will hold a contest in September to replace Kishida as the party leader and, consequently, as the prime minister of Japan. Kishida’s popularity started to decline rapidly after he took office in 2021 following revelations about the LDP’s ties to the controversial Unification Church. Additionally, the discovery of unrecorded political donations made at LDP fundraising events further damaged his reputation.
Kishida also faced public discontent over the failure of wages to keep pace with rising living costs as the country emerged from years of deflationary pressure. He emphasized policies aimed at boosting household incomes, including wage hikes and promoting share ownership, departing from previous corporate profit-driven economic policies. Kishida led Japan out of the COVID pandemic with massive stimulus spending and appointed academic Kazuo Ueda to head the Bank of Japan (BOJ).
The BOJ unexpectedly raised interest rates in July as inflation took hold, leading to stock market instability and a sharp increase in the yen. Kishida’s departure could lead to tighter fiscal and monetary conditions depending on the chosen candidate for the next prime minister. Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo, suggested that risk-assets, particularly equities, will likely be most affected. Kishida’s premiership was also characterized by a significant military buildup, aiming to double defense spending to deter neighbouring China from pursuing its territorial ambitions in East Asia through military force. He also worked to repair Japan’s strained relations with South Korea, with the mutual ally, the U.S., to pursue deeper security cooperation to counter the threat posed by North Korea’s missile and nuclear weapons programs.
Former defense minister, Shigeru Ishiba, has already expressed interest in replacing Kishida, with other potential contenders including Foreign Minister Yoko Kamikawa, Digital Minister Taro Kono, and former Environment Minister Shinjiro Koizumi. It is crucial for the LDP to choose a new leader detached from present administration ties and the recent political funding scandals to regain public trust and survive the upcoming general election.