Japan's Political Reset

New Leadership, Old Dilemmas

Japan has embarked on a new political chapter with the appointment of Sanae Takaichi as the country’s first female prime minister, a historic milestone that comes amidst deepening challenges at home and abroad. At the age of 64, Takaichi represents both continuity and change—a protégé of the late Shinzo Abe who channels his nationalist vision while navigating political terrain far more treacherous than her mentor ever faced.

The Road to Power

Takaichi's rise to power has been a turbulent sequence of events that also exposes the fragility of Japan's political establishment. Her predecessor, Shigeru Ishiba, resigned in September as he could not withstand the twin blows of consecutive electoral defeats that cost the ruling Liberal Democratic Party its parliamentary majorities in both houses for the first time in decades. The LDP's troubles stemmed from multiple sources: a damaging political funding scandal, persistent inflation that increased the rice prices by 49 percent, and growing anti-foreigner sentiment that fueled the rise of the Sanseito party.

Takaichi won the LDP leadership on October 4 in a runoff election, defeating Agriculture Minister Shinjiro Koizumi with 54 percent of the vote. But her path to the prime ministership immediately hit an obstacle when Komeito, the LDP's coalition partner of 26 years, withdrew from the alliance over disagreements regarding political corruption and Takaichi's conservative positions on immigration, China relations, and visits to the controversial Yasukuni Shrine. This left the LDP scrambling to forge a new coalition to secure parliamentary approval for Takaichi's premiership.

After intense negotiations, Takaichi managed to strike a deal with the Japan Innovation Party, known as Ishin, a right-leaning Osaka-based opposition party. This arrangement is a marriage of convenience between two parties that share hawkish positions on defense and immigration but diverge sharply on economic philosophy. While Takaichi advocates expansive fiscal spending to revive growth, Ishin champions smaller government, tax cuts, and fiscal discipline. While this enabled Takaichi's election as prime minister, the situation still remains fragile because the coalition is two seats short of a Lower House majority and Ishin also declined to appoint ministers to Takaichi's cabinet, reflecting deep mutual wariness.

A Nation Under Pressure

The new prime minister inherits a country facing intersecting crises. Japan's demographic collapse continues to accelerate, with the population declining by over 900,000 people in 2024—the largest annual drop on record and the 16th consecutive year of decline. Births fell to just over 600,000 which is the lowest number since 1899, while deaths approached 1.6 million, producing a ratio of more than two deaths per birth. This "quiet emergency," as former Prime Minister Ishiba termed it, threatens to overwhelm pension and healthcare systems while shrinking the workforce precisely when Japan needs economic dynamism.

Economically, Japan confronts stubborn inflation that has exceeded the Bank of Japan's 2 percent target for 41 consecutive months. This inflation differs fundamentally from past episodes. Rather than temporary shocks, current price pressures reflect structural labor shortages that are pushing wages higher and creating what economists describe as a potential wage-price spiral, though real wages adjusted for inflation continue to decline.

The USA Factor

Takaichi's meeting with the US President Donald Trump in Tokyo last week was also her first major diplomatic test. The meeting carried enormous stakes for a prime minister with limited foreign policy experience leading a minority government. However, Takaichi has successfully established rapport with Trump and demonstrated competence on the global stage. Yet the concessions Japan made—particularly the massive investment commitment—also raise questions about Japan’s leverage in the relationship and how those funds will ultimately be deployed.

The China Challenge

While Takaichi warmed up the relationship with the USA, she has also faced a notably cooler reception from Beijing. China did not congratulate Takaichi upon her appointment, breaking with the precedent of immediately congratulating her predecessors. This deliberate snub reflects Chinese concerns about Takaichi's hawkish positions, including her regular visits to Yasukuni Shrine, which commemorates Japan's martyrs of war, including individuals convicted of war crimes in China.

However, the diplomatic channels have eventually opened and the Chinese Foreign Minister spoke to his Japanese counterpart, emphasizing the importance of "high-level exchanges" and hinting at a potential meeting between Takaichi and Chinese President Xi Jinping at the APEC summit in South Korea. The two sides are working to arrange a first meeting between Takaichi and Xi for the summit.

Looking Ahead

This delicate balancing act of deepening security cooperation with the United States while maintaining workable relations with China represents one of Takaichi's most difficult challenges. Her coalition partner Ishin shares her hawkish instincts, which suggests that the government will pursue more assertive "Japan First" diplomacy.

In her first policy speech to parliament last week, Takaichi devoted more than half of her time to economic policy, designating the fight against inflation as her cabinet's top priority. She pledged to swiftly formulate economic stimulus measures and a supplementary budget. The government is also exploring free high school tuition and school lunches, which are policies that cross party lines but require resolution of funding and implementation details.

Takaichi's broader economic vision centers on what she calls "strategic investments that enhance resilience against potential crises"—public-private partnerships addressing economic security, food security, energy security, and health security while cultivating cutting-edge technologies in AI, semiconductors, quantum computing, and biotechnology. This approach echoes Shinzo Abe's growth strategy while responding to contemporary anxieties about supply chain vulnerabilities and great power competition.

Yet the question remains whether Takaichi can translate ambitious policy pronouncements into legislative reality. Her minority government requires opposition support for every budget and bill, forcing continuous negotiation and compromise. The coalition with Ishin remains untested, built on shared nationalist sentiments but divided on fundamental questions of fiscal policy. Some Ishin members are openly skeptical, recalling past instances when the LDP broke policy commitments, and the party also lacks experienced personnel for governing at the national level.

The coming months will prove decisive for Takaichi as she must demonstrate that she can manage coalition politics, control inflation without stifling growth, navigate unpredictable external pressures while also maintaining regional stability, and address Japan's demographic emergency through policies that balance economic necessity with cultural sensitivities. Japan is now on its fifth prime minister in five years. This extraordinary political instability has created public fatigue with revolving leadership. Whether Takaichi can break this pattern and provide the steady hand Japan desperately needs remains the central question of Japanese politics as 2025 draws to a close.