Japan’s Ishiba Vows to Hold On to His Job After Elections

Japan PM Shigeru Ishiba speaking in Tokyo in April. (Nicolas Datiche/Sipa/Bloomberg)

Japanese Prime Minister Shigeru Ishiba vowed to hang onto his job even after his Liberal Democratic Party lost its majority in parliament’s upper house following Sunday’s elections.

A fractured opposition won nearly twice as many seats as the LDP, which has dominated Japanese politics since World War II. The LDP will remain the largest party in parliament by far, but losing the upper house majority could unleash an internal revolt against Ishiba, who already led the party to a similar defeat in lower house elections last November.

The upheaval in Japanese politics comes amid vital trade talks with the U.S. and a return to inflation after decades of stable or falling prices. President Donald Trump has set an Aug. 1 deadline to impose 25% tariffs on close to $150 billion in annual Japanese exports to the U.S.

Election results could also shake up the bond markets and the yen . Ishiba is seen as a fiscal hawk, trying to tame Japan’s government debt, which remains above 200% of gross domestic product despite some reduction after the Covid-19 pandemic.

A successor to Ishiba could open the fiscal spending taps, bringing out the bond vigilantes. Yields on Japanese 10-year bonds have risen 50% since the start of the year and have crept up 17 basis points since July 1, the highest since 2008. Japanese 30-year bonds hit highs this past week, and the 20-year is at its high since 1999.

Bond markets will be closed Monday for a national holiday, so trading in the yen will be the first indicator of investors’ reaction to the election.

More broadly, voters are reacting to Japan’s long-awaited exit from deflation, which could be less popular at home than in the financial markets. Consumer price inflation is stuck above 3% annually, outrunning pension payments in the world’s oldest population. The rising cost of living is a leading complaint among Japanese voters, along with corruption scandals that tarnished the long-dominant LDP last year.

Younger voters, though, seem to have gravitated toward opposition parties promising lower taxes, and implicitly less support for the elders.

If Ishiba pulls out a victory, it could give him a freer hand to make the kind of concessions Trump seems to be seeking, particularly loosening Japanese import restrictions on U.S. autos and opening up the domestic rice market. U.S. tariffs could produce significant losses in Japan’s export industries, notably auto makers like Toyota Motor and Honda Motor , even as Trump is calling for higher defense spending. If Ishiba loses his majority, no single opposition party looks strong enough to seize the reins. Japan’s waters could become uncharted at a critical time.

He is expected to address the nation on Monday.

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