What Japan’s Election Shakeup Means for Tariff Deal, Ruling Party and a Trump Wannabe

Before Shinzo Abe became the country’s longest-serving post-war leader, Japan had a flurry of prime ministers who never lasted long, achieved little, and left office without making an impression. Are we heading into a similar sequence of leadership change for the world’s No. 4 economy?

Pop quiz: name the current Japanese prime minister!

Well, you score points if you name checked Shigeru Ishiba. Extra credit if you note that, thanks to Sunday’s elections, he isn’t likely to remain in office for long.

Ruling party loses second majority

Japan has been caught up in election fervor, as I mentioned while writing from Okinawa. Now the results are in, dealing Ishiba’s ruling Liberal Democratic Party a punishing defeat.

The key takeaway: the LDP lost its majority in Upper House in Sunday’s vote.

The LDP, which has governed Japan essentially since the end of World War II, bar two brief interludes, already lost its majority in the more-powerful Lower House in October. So now we have a crippled administration that requires coalition partners to push through any of its policies, always subject to disruption should upstart partner parties decide to hold the administration to political ransom.

Embattled leader vows to stay on

Ishiba vows to stay on, despite saying he feels a “heavy responsibility” for the election loss.

The embattled prime minister cites the ongoing trade negotiations with the United States as a key reason for continuity. Tariffs and a cost-of-living increase that has seen rice prices double in a year are his top concerns.

“I will stay in office and do everything in my power to chart a path toward resolving these challenges,” Ishiba said after the election results.

Ishiba, who declared higher U.S. tariffs a “national crisis” when they were first announced, added that he intends to speak directly with U.S. Pres. Donald Trump as soon as possible.

Expected trade deal yet to materialize

When Trump first unveiled his punitive “reciprocal” tariffs back in April, most economics and analysts expected Japan, a key Asia Pacific ally and trading partner, to be first in line to strike a deal. But that has not happened. Japan’s trade team has been to Washington for seven rounds of talks, but left empty-handed every time.

Ishiba’s hand-picked tariff negotiator, Ryosei Akazawa, arrived back in Washington on Monday for an eighth set of talks with the Trump cabinet. He met last night with U.S. Commerce Secretary Howard Lutnick.

Akazawa says the election results shouldn’t disrupt any trade discussions, which he believes should result in some kind of agreement by the Aug. 1 deadline for worldwide U.S. tariffs to kick in.

We’ve heard that before. Japan faces a flat 25% tariff on exports to the United States, and was top of the list of trading partners that received letters from Trump with an Aug. 1 ultimatum, as I explained earlier this month.

U.S. Treasury Sec. Scott Bessent just returned from Japan, meeting with Ishiba in Tokyo for half an hour, and then attending the 2025 World Expo in Osaka. But despite the original promise of 90 trade deals in 90 days, Bessent now says U.S. negotiators “aren’t going to rush for the sake of doing deals.” He added that any extension beyond Aug. 1 for countries such as Japan that are currently locked in talks would be up to Trump.

Symbolic issues

The Trump administration is pushing for greater access for U.S. farm goods to Japan, while Japan wants easing of the 25% tariff on U.S. auto imports. Both industries are symbolic pillars of the two economies, backed by powerful lobbies that complicate the trade talks.

Ishiba already faces calls to resign from the opposition and even some members of his own party, which contains a number of rival camps. Upper House LDP member Hiroshi Yamada said via social media that the “prime minister should take responsibility for the crushing defeat.”

The LDP will hold a meeting of its Upper and Lower House members on July 31 to analyze the results, and discuss Ishiba’s future. That could amount to a vote of confidence within his own party.

The party needed to capture 50 seats to maintain a majority in the 248-seat Upper House; it won 47, to the 78 seats captured by opposition parties. That leaves the LDP with 122 Upper House seats, offset by the 126 seats in the hands of the opposition.

If there was a silver lining to the election cloud, it was that the LDP didn’t lose quite as many seats as expected. Another interesting statistic: The greatest proportion of female candidates won office, with 33.6% of the available seats going to women, or 42 seats to the 35 at the last Upper House election, in 2022.

Anti-immigrant gains

The LDP lost ground with conservative voters to upstarts such as the populist Sanseito party. Sanseito, with an anti-immigrant “Japanese first” nationalist slogan, has been a fringe influence since it formed in 2020 but was one of Sunday’s big winners, walking away with 14 Upper House seats. Sanseito successfully used social media to reach young conservatives, with leader Sohei Kamiya saying he draws from Trump’s “bold political style.”

Japan resists immigration despite the need for workers to supplement an ageing workforce. The 3.8 million foreign residents make up only 3% of Japan’s 124 million population, although the tally rose 10.5% last year. But public frustrations over “bad behavior” are also driven by the record number of foreign visitors last year. The 21.5 million foreign arrivals in the first six months of 2025 set Japan on track to post another record number this year.

The arrivals are lured partly by the current very weak levels of the Japanese yen. The currency trades today at ¥147.55 to the U.S. dollar, compared with a rate of ¥105 when Abe left office in 2020.

Six leaders in six years

Before Abe took office in December 2012, there were six largely anonymous leaders in six years. Abe provoked a surge in consumer and corporate confidence, not to mention Japanese stocks, with his “Abenomics” policies designed to restore faith in the economy and initiate significant corporate reform.

Abe became Japan’s longest-serving postwar leader before he stepped down in 2020. Sadly assassinated while campaigning during Upper House elections in 2022, Abe has had three successors who have all struggled in terms of public profile and popularity.

Let’s be honest, Ishiba has done little to light the world alight since he took office in October. It looks like he will shuffle out the leadership door either of his own volition, on reflection over the election results, or pushed out from within his own party.

Equity markets were closed on Monday in Japan but are treading water today, as they have all year. They will likely struggle for direction both while Ishiba’s future remains unclear and so long as tariff talks lack any tangible result.

The broad-market Topix is essentially flat today, technically up 0.1%, to give it a 2.9% gain so far this year. The blue-chip Nikkei 225, with a heavier leaning toward multinationals and major exporters, is down 0.1% today and up just 1.2% in 2025.

It will take a resolution of Japan’s trade negotiations to move the mark for stocks. Expect little dynamism out of Japan’s leadership, particularly with the ruling party and Ishiba hobbling along.

At the time of publication, Alex Frew McMillan had no position in any security mentioned.