Japan’s Ishiba vows to stay on despite historic election setback

Japanese Prime Minister Shigeru Ishiba said he intended to stay on even as his ruling

coalition suffered a historic setback

in an Upper House election on July 20, an outcome that may further unsettle markets.

The ruling Liberal Democratic Party (LDP), along with long-time partner Komeito, lost its majority in the chamber, public broadcaster NHK reported, saying the bloc failed to win the 50 seats it needed to maintain control.

This marks the first time since 1955 that a leader from the storied Japanese party will govern the country without a majority in at least one of the legislative bodies. 

The result is the second dismal election showing for Mr Ishiba since he became premier in October 2024, even though the coalition’s tally of at least 46 seats may yet be enough for him to keep his job.

Asked repeatedly on the night of June 20 if he intended to stay on, he answered with a simple “that’s right”.

“I continue to have a number of duties I must fulfil for the nation, including achieving wage growth that exceeds inflation, achieving gross domestic product of a quadrillion yen and responding to an increasingly tense security environment,” Mr Ishiba said.

“Though the votes are still being counted, we do seem to have won the most number of seats out of the parties.”

Overall, the ruling coalition was set to lose more than 16 seats. The outcome showed simmering discontent over a cost-of-living crunch, draining support from the ruling coalition and benefiting smaller populist parties offering tax cuts or opposition to an influx of foreigners into the country. 

Market players have been concerned that a further weakening of Mr Ishiba’s leadership will nudge the coalition into giving concessions to the opposition, including cuts to the sales tax.

Investors are increasingly doubtful that lawmakers can rein in spending, one factor that has helped push yields on Japanese debt to the highest levels in more than two decades. 

The yen rose about 0.5 per cent in early trading following the results. Stock and bond markets are closed for a public holiday in Japan. 

The tighter margins in the Upper House threaten to throw Mr Ishiba’s policy agenda into further disarray, complicate trade talks with the US and potentially cost him his job.

The last three LDP prime ministers who lost an Upper House majority stepped down within two months, including Mr Shinzo Abe in 2007 during his first stint as premier.

While an eight-party coalition briefly ousted the LDP from office after a Lower House election in 1993, that looks unlikely this time around.

The opposition is split among roughly a dozen parties that are too fractured to pull together any kind of stable alternative if it brings a no-confidence vote against Mr Ishiba, meaning the LDP will probably trudge along by cutting deals to cobble together support on an issue-by-issue basis. 

On a broader level, the results point to the nation’s long-established parties drifting further out of touch with younger, urban voters. These people are questioning whether social welfare is worth the tax burden and are growing sceptical of the influx of foreigners visiting and working in the nation.

“There is a real drop in support for old, traditional parties,” said Professor Yuri Kono, who teaches law at Hosei University and writes frequently on politics. “This may be the beginning of a very fundamental change in Japanese politics.”

While there still seems little appetite among the public for a rapid rise in interest rates to cool inflation, voters are becoming impatient with the government’s ad hoc utility subsidies and other cash handouts preferred by Mr Ishiba. Opposition parties that campaigned on a sales tax cut to help ease household budgets did well on June 20.

The main opposition Constitutional Democratic Party (CDP), which called to exempt food from the sales tax for as many as two years, came in second place with just over 20 seats.

The populist Democratic Party for the People finished third with 16 seats, up from four earlier, after seeking a sales tax cut and more take-home pay. 

Sanseito, a right-wing party that tapped anti-foreigner sentiment with a

“Japanese First” message

, managed to crack into double figures from just a single seat.

Japan’s main opposition leader, Mr Yoshihiko Noda of the CDP, said he would consider whether to submit a no-confidence motion in the Lower House after hearing what Mr Ishiba says at a press conference that is likely to take place on July 21.

The less powerful Upper House cannot appoint a prime minister, hold a no-confidence vote or stop the passage of a budget. But it can delay or block other legislation, potentially leading to gridlock in the policymaking process. 

‘Extremely risky’

Back in 2008, the Upper House famously blocked the government’s nomination for Bank of Japan governor at a time when problems with sub-prime mortgages in the US were bubbling up into what would become the global financial crisis.

The fight over spending comes as Japan faces an Aug 1 deadline to strike a deal with US President Donald Trump before across-the-board tariffs on exports to the US jump to 25 per cent from 10 per cent.

Such a move would reduce Japan’s gross domestic product by 0.9 per cent over the medium term, according to Bloomberg Economics. Japan is also facing calls from Mr Trump to further boost defence spending.

“For Ishiba, continuing in his role will be an exceptionally challenging prospect under the current circumstances,” said Professor Chihiro Okawa, a political expert at Kanagawa University.

“When it comes to the question of who would take over leadership at this point, it becomes a matter of ‘picking chestnuts out of the fire’ – an extremely risky and undesirable task,” he added. “It’s entirely possible that no one will be eager to step into such a precarious position.” BLOOMBERG