Japanese Stocks Cheer Shigeru Ishiba’s Resignation: Why There May Be High Hopes For Economy From Successor

Japanese Prime Minister Shigeru Ishiba announced his resignation on Sunday (September 7, 2025) after mounting pressure from within the ruling Liberal Democratic Party (LDP). While the announcement seems sudden, Ishiba’s resignation follows a series of crisis that Japan has been reeling under for around 3 years now.

Ishiba’s latest shock departure comes just a few days after Prime Minister Narendra Modi met him in Tokyo, after which India and Japan further bolstered their ties with the ISRO-JAXA lunar mission for Chandrayaan-5, among other things. New Delhi also won $68 billion in investments from Tokyo.

The decision taken by Ishiba also follows a string of election defeats that weakened his government and eroded confidence in his leadership. Ishiba, who has served only 11 months in office, said ongoing negotiations with Washington over tariffs had reached a milestone, making it the “appropriate timing” to step aside.

What triggered Ishiba’s downfall?

Ishiba’s troubles began shortly after taking office in October last year, when the Liberal Democratic Party (LDP) suffered a crushing defeat in the Lower House elections. The situation worsened in July as the ruling coalition with Komeito lost its Upper House majority, intensifying calls for him to take responsibility.

Senior leaders, including Agriculture Minister Shinjiro Koizumi and former Prime Minister Yoshihide Suga, reportedly pressed him to quit ahead of an internal vote that was shaping up as a de facto no-confidence motion.

“I would like to pass the baton to the next generation,” 68-year-old Ishiba said while declaring that he is stepping down, and pointed to a trade deal with Washington.

How did party dynamics influence his exit?

Party secretary-general Hiroshi Moriyama’s resignation last week further weakened Ishiba’s position, leaving him isolated. Internal surveys showed a majority of prefectural chapters and over 160 lawmakers favored an early leadership contest. With support collapsing, Ishiba had little room to maneuver.

New Japan PM: Who are the frontrunners?

The upcoming leadership race is expected to be intense. Sanae Takaichi, a conservative former economic security minister, is widely expected to contest again. Shinjiro Koizumi, seen as a fresh face capable of appealing to younger voters, is also a strong contender. Chief Cabinet Secretary Yoshimasa Hayashi and former minister Takayuki Kobayashi may also throw their hats into the ring.

What challenges will the next leader face?

The LDP’s new leader will inherit a fractured party without a majority in either chamber of parliament, which is an unusual scenario for a party that has dominated Japanese politics for decades. Building alliances with opposition parties will be essential to push legislation through, but political paralysis remains a risk.

Some observers believe a snap Lower House election could be called to consolidate power, though recent voter backlash over inflation, particularly soaring rice prices, makes this move highly uncertain.

How does Ishiba’s resignation affect Japan’s economy?

Despite achieving a reduction in US auto tariffs from 27.5% to 15%, Ishiba leaves behind unresolved trade tensions and economic headwinds. Rising living costs, a weak yen, and pressure on government bonds add to the uncertainty. Investors fear the political shake-up could further unsettle financial markets, raising questions about Japan’s economic stability in the months ahead.

Traders happy as Ishiba leaves?

After Ishiba announced that he is stepping down, stocks in Japan soared while the yen sank. Japanese shares on Monday (September 8, 2025) climbed to an all-time high as Tokyo traders hoped that Ishiba would be replaced by Takaichi, a right-wing disciple of the “Abenomics” policies of the late Shinzo Abe.

Japan’s broad benchmark Topix, which tracks the whole Tokyo stock market, rose about 1 per cent.

The super long-term bond yields, on the other hand, scaled record highs as Ishiba’s resignation gave fuel to speculation that policies favoured by potential successors – such as fiscal dove Sanae Takaichi – may strain the world’s most indebted advanced economy.