Japan's PM Kishida Announces September Resignation: A Look at What's Next

Japanese Prime Minister Fumio Kishida is set to step down as the leader of the ruling party in September, according to reports from various media outlets, including public broadcaster NHK. This decision comes at the end of a three-year term that was characterized by rising costs of living and a series of political scandals that eroded his public support.

Kishida's departure will initiate a leadership contest within the Liberal Democratic Party (LDP), which will subsequently determine the new leader of the world’s fourth-largest economy. The successor will inherit a challenging landscape, including mounting geopolitical tensions, escalating living costs, and the potential implications of a possible return of Donald Trump as U.S. President in the upcoming year.

As Japan's eighth-longest-serving post-war leader, Kishida navigated the country through the aftermath of the Covid-19 pandemic, implementing massive stimulus spending to stabilize the economy. A significant move in his tenure was appointing Kazuo Ueda, an academic economist, as the head of the Bank of Japan (BOJ) to bring an end to the previous radical monetary stimulus approach.

In a surprising move, the BOJ raised interest rates in July, a decision that caused instability in the stock market and led to a sharp decline in the yen's value. Shoki Omori, the chief Japan desk strategist at Mizuho Securities in Tokyo, noted that if this reporting proves accurate, Japan should anticipate tighter fiscal and monetary policies depending on the new leader. Omori also suggested that risk assets, especially equities, are likely to be most affected by these changes.

Kishida also took a different economic path from his predecessors by rejecting the corporate profit-driven trickle-down approach in favor of policies aimed at increasing household incomes, such as promoting wage hikes and encouraging share ownership among citizens. This shift represented a significant break from traditional economic strategies, signaling a more inclusive approach to economic growth.