Japanese media outlets, including the Mainichi Shimbun, reported on July 23rd that Prime Minister Shigeru Ishiba informed close associates of his intention to announce his resignation at the end of August, following the Liberal Democratic Party's (LDP) assessment of the House of Councillors election.
The news prompted a sell-off in the Japanese Yen and a surge in Japanese stock prices. The Nikkei 225 index rose by over 3% during the day, surpassing the 41,000 point mark. The US dollar also strengthened against the Yen, reaching a high of 147.20.
Ishiba reportedly held meetings with key LDP figures, including Taro Aso, Yoshihide Suga, and Fumio Kishida, to discuss his political future. However, his continued presence in office after the Upper House election defeat has sparked widespread criticism and calls for his resignation.
Local LDP organizations are demanding a restructuring of the party, while younger lawmakers are calling for a general assembly of both House members to elect a new party leader. Ishiba's meetings with former prime ministers aim to garner their support and exchange views.
Prime Minister Ishiba faced a significant setback in the July 21st House of Councillors election, where the LDP and its coalition partner Komeito lost their majority in the Upper House. The coalition secured only 47 seats, falling short of the 50 needed to maintain a majority. This marks the first time in 70 years that the LDP has lost control of both houses of parliament.
At a press conference on Monday, Ishiba stated that the LDP, as the leading party in the House of Councillors, must take responsibility to avoid political gridlock. He also indicated that he would seek consensus with opposition parties on specific policy issues.
The recently concluded trade agreement with the United States has also raised questions about Ishiba's political future. President Trump announced a "massive" trade deal with Japan, under which the US will impose a 15% tariff on Japanese goods, while Japan will invest $550 billion in the US, with 90% of the profits going to the US. Additionally, Japan will open its markets to US automobiles, rice, and certain agricultural products.
Ishiba stated that he would issue further comments after reviewing the details of the agreement, but he believes the agreement is in Japan's national interest. Under the agreement, US tariffs on Japanese automobiles will decrease from 25% to 15%. Japan had been facing the risk of the US raising tariffs to 25% after August 1st.
Ishiba's potential resignation creates political and economic uncertainty in Japan. Investors will closely monitor upcoming developments and assess their impact on the Japanese economy. The focus will be on the stability of the new administration and its ability to navigate the complex global economic landscape. Any policy shifts regarding monetary policy, fiscal stimulus, or trade relations will be of particular interest to market participants.
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