Japan's Political Reset: New Leadership, Old Dilemmas

Will Japan’s first woman prime minister restore stability to a nation struggling with rising prices, a shrinking population, and shifting global ties?

Japan has entered a new political chapter with Sanae Takaichi’s appointment as its first female prime minister—a historic milestone amid rising domestic and global challenges. At 64, Takaichi represents both continuity and change: a protégé of Shinzo Abe, she upholds his nationalist vision while steering through a more complex political landscape.

Road to power

Takaichi’s turbulent rise underscores the fragility of Japan’s political system. Her predecessor, Shigeru Ishiba, resigned in September after consecutive defeats cost the LDP its parliamentary majority for the first time in decades. The party’s decline stemmed from a funding scandal, stubborn inflation that drove rice prices up 49 per cent, and rising anti-foreigner sentiment that boosted the Sanseito party.

On October 4, Takaichi won the LDP leadership, defeating Agriculture Minister Shinjiro Koizumi with 54 per cent of the vote. But her ascent quickly hit a hurdle when Komeito, the LDP’s coalition partner for 26 years, withdrew over corruption disputes and her conservative views on immigration, China, and the Yasukuni Shrine. The LDP was left scrambling to find new allies.

After tense talks, Takaichi forged a deal with the Japan Innovation Party (Ishin), a right-leaning Osaka-based group. The alliance is pragmatic: both share hawkish views on defence and immigration but diverge on economics. Takaichi favours heavy fiscal spending, while Ishin backs smaller government and tax cuts. Though the pact secured her premiership, the coalition remains fragile—two seats short of a Lower House majority, with Ishin declining cabinet posts amid mutual mistrust.

A nation under pressure

The new prime minister inherits a nation in crisis. Japan’s demographic decline is accelerating, with the population shrinking by over 900,000 in 2024—the largest drop on record and the 16th straight year of decline. Births fell to just over 600,000, the lowest since 1899, while deaths neared 1.6 million—more than twice the number of births. This “quiet emergency”, as former Prime Minister Ishiba called it, threatens to strain pensions, burden healthcare, and erode the workforce when Japan most needs growth.

Economically, Japan faces stubborn inflation that has stayed above the Bank of Japan’s 2 per cent target for 41 consecutive months. Unlike earlier bouts, it stems from structural labour shortages driving wages higher and fuelling a potential wage–price spiral—even as real incomes continue to fall.

The USA factor

Takaichi’s meeting with US President Donald Trump in Tokyo last week was her first major diplomatic test. It carried high stakes for a prime minister with limited foreign policy experience and a minority government. Though she built a good rapport with Trump and showed confidence on the global stage, the concessions Japan made—especially the large investment pledge—have sparked questions about Japan’s leverage in the relationship and how those funds will ultimately be used.

The China challenge

While Takaichi has strengthened ties with the United States, her reception in Beijing has been notably colder. China withheld congratulations on her appointment, breaking with tradition. The snub reflects Beijing’s unease over her hawkish stance, especially her repeated visits to the Yasukuni Shrine, which honours Japan’s war dead, including those convicted of war crimes in China.

Looking ahead

Balancing closer security ties with the United States while maintaining workable relations with China is among Takaichi’s hardest challenges. Her coalition partner, Ishin, shares her hawkish instincts, signalling a tilt toward a more assertive “Japan First” diplomacy.

In her first policy speech to parliament last week, Takaichi devoted much of her address to economic issues, naming the fight against inflation as her top priority. She promised swift stimulus measures and a supplementary budget while exploring free high school tuition and school lunches—popular policies that still face funding hurdles.

Her broader vision focuses on “strategic investments” to build resilience through public–private partnerships that strengthen economic, food, energy, and health security. In addition to driving innovation in AI, semiconductors, quantum computing, and biotechnology. The approach recalls Shinzo Abe’s growth agenda but adapts it to modern worries over supply chains and global rivalry.

Turning these plans into law, however, remains uncertain. Her minority government must rely on opposition support for every bill, forcing constant compromise. The alliance with Ishin is untested—united by nationalism but divided on fiscal policy. Some Ishin members remain wary, citing past LDP reversals, and the party lacks experienced figures for national governance.

The coming months will test Takaichi’s ability to manage coalition politics, curb inflation without slowing growth, handle external pressures, and tackle Japan’s demographic crisis. With the nation on its fifth prime minister in five years, public fatigue with revolving leadership runs deep. Whether she can end this cycle and bring stability remains the key question as 2025 draws to a close.

(The writer is a foreign affairs expert. Views personal.)