Japan’s Liberal Democratic Party (LDP) has selected Takaichi Sanae as its new leader. She is the first woman to lead the party in its seventy-year history. However, less than a week into her tenure, the LDP’s coalition partner of twenty-six years, the Komeito, announced it would leave the coalition and not support her for prime minister. The Komeito cited concerns that the LDP is not sufficiently addressing a political funding scandal that helped contribute to the coalition’s losses in both the upper house and lower house elections over the past year. The LDP lacks a majority in both houses, and with opposition parties looking at various options for cooperating to nominate an alternative prime minister, her path to the prime minister’s office is uncertain.
The LDP selected Takaichi out of desperation to regain conservative voters who led them to two consecutive electoral defeats over the past year, pivoting away from current Prime Minister Ishiba Shigeru’s moderate positions. Takaichi has a track record of far-right stances on many issues, although she somewhat tempered her views during the most recent LDP presidential race. This had raised concerns within and outside Japan: at a time when the country faces serious geopolitical, economic, and social challenges, would the LDP’s strategy to bolster its traditional support base help or hinder Japan’s ability to cope with those challenges?
Takaichi won the LDP presidency with the support of former prime minister Aso Taro, the eighty-five-year-old leader of a party faction. She selected Aso as vice president of the party, Aso’s right-hand man (who is also his brother-in-law) as secretary general, and other people from Aso’s faction in key party positions. This was a conservative shift that took the LDP further away from the more moderate Komeito.
Immediately after Takaichi won, the Komeito raised three major concerns: the LDP’s approach to recent campaign finance scandals, Takaichi’s hard-line stance against foreigners, and her far-right view of history that downplays Japan’s role as an aggressor along with her visits to the controversial Yasukuni Shrine. While the Komeito leader and Takaichi resolved some of these issues, they were unable to resolve the political funding issue. The flashpoint was the return of Hagiuda Koichi, who was brought in by Aso. Hagiuda, a former minister of the Ministry of Economy, Trade and Industry, had been given a one-year suspension from party positions due to his involvement in a campaign scandal that led to the fall of Kishida Fumio’s administration just over a year ago.
Put simply, the Komeito was driven away by the combination of Takaichi’s win and the return of Aso and his faction into the seat of power within the LDP.
In the lower house, the LDP and Komeito coalition had 221 seats out of 465 seats, with 233 needed for a majority. Alone, the LDP has only 196 seats. While it still holds the most seats, with the largest opposition party, the Constitutional Democratic Party of Japan (CDP) holding 148 seats, the possibility of new coalitions has suddenly opened up. (The LDP has a stronger hold of the upper house, with 101 out of 248 seats, compared to the largest opposition party’s 38 seats. However, the lower house holds the final say on selecting a prime minister.)
Although the sudden dissolution of the LDP-Komeito coalition makes it far less certain that Takaichi will become Japan’s next prime minister, it is still worth considering what is at stake, including the challenges and opportunities facing Japan’s next prime minister.
A Successor to Abe, but What Does That Mean?
Takaichi has positioned herself as a successor to Japan’s popular, conservative, and longest tenured prime minister, Abe Shinzo. Her early party appointments have favored people who were close to Abe, as well as those who supported her in the runoff election. Abe stood for many things, ranging from efforts to revise Japan’s pacifist constitution, strong control of the media, assertions of strong nationalism, and conservative social values. Takaichi did not mention constitutional reform in the LDP leadership election, but she has emphasized conservative social values with her support of measures to block married couples from having different surnames and a strict stance against foreigners.
Beyond social issues, Abe’s “three arrows” from his “Abenomics” economic strategy entailed dramatic fiscal spending, pressure to expand the monetary supply, and economic structural reform. Takaichi has highlighted massive fiscal expenditures along with subsidies and tax breaks, which fueled a major stock market rally after she was elected. While her economic proposals so far have not gone into specifics, she does have an opportunity to propose economic structural reforms in the vein of Abe’s “third arrow.” However, unlike Abe, who came into power riding a landslide LDP victory, Takaichi must helm a weak LDP that does not enjoy majorities in either house, making a reform agenda more difficult if she cannot get opposition parties to cooperate.
Japan’s Geopolitical Challenge
Geopolitically, Japan is sandwiched between the United States and China. While Japan has explicitly identified China as a security threat and continues to firmly commit to the U.S. security umbrella, its economy is deeply tied to both countries. Other flashpoints abound: Taiwan is a perennial threat, and Japan faces both Russia and North Korea across narrow seas. In this geopolitical neighborhood, South Korea is an obvious ally, and Prime Minister Ishiba Shigeru’s relationship with President Lee Jae Myung got off to a remarkably amicable and constructive start.
Enter Takaichi. While she has pledged unwavering support for the U.S. alliance, her long history of right-wing stances on historical issues is cause for worry. In her most recent campaign to become party leader (her third), her rhetoric was softened considerably. In previous election cycles, she had pledged to continue her regular visits to Yasukuni Shrine, a controversial shrine honoring Japan’s war dead. South Korea and China consistently protest when Japanese heads of state visit the shrine on the grounds that Class A war criminals are interred there. Abe was the last prime minister to visit the shrine in 2013, angering both countries—and he also visited immediately after resigning in 2020. A visit or even a firm pledge to visit Yasukuni by Takaichi would doubtless confirm South Korea’s worst fears, since she has also publicly spoken for the need to make sure Japan’s education system emphasizes pride in its history, going so far as to downplay the comfort women issue. After being elected as LDP leader, however, Takaichi waffled on whether she would visit the shrine in response to a reporter’s point-blank question.
Japan’s Economic Challenges
Economically, Takaichi must cope with voters’ increasing frustration with rising living costs. Surveys just before and after the July 2025 election, when the LDP lost eighteen seats, identify this as voters’ leading concern along with issues surrounding Japan’s aging demographics and future medical costs and pension obligations.
As democracies around the world have discovered over the past few years, voter frustrations with rising inflation and living costs easily become political flashpoints. At the same time, there are no easy solutions. Yet, Takaichi’s Abenomics-style proposals (lately dubbed “Sakaenomics”) of massive fiscal expenditure and loose monetary policy are usually associated with spurring inflation rather than tempering it. Indeed, Abenomics was formulated when Japan was stuck in a deflationary spiral—the very opposite of inflation. If much of Japan’s fiscal expenditure under Takaichi goes toward tax breaks and subsidies for the middle and working classes, they may be somewhat mollified even if inflation rises somewhat.
Takaichi must also cope with U.S. tariffs and the ongoing reorganization of global trade. The tariffs are hitting Japan’s major exporters hard, but they are far more threatening to small and medium-size firms that are part of international supply chains and have relied on the U.S. market. As these firms rush to diversify, they are seeing a flood of Chinese competitors also streaming into non-U.S. global markets. Takaichi has promised subsidies and tax breaks to struggling small and medium-size firms, which are a crucial portion of the LDP’s support base.
Takaichi has emphasized the need to create strong economic growth to allow for redistribution and to generate revenue, both for the government and private sector. Indeed, there is ample upside potential in addressing some of Japan’s pressing economic challenges. Useful targets for her economic policy agenda could include reform measures that remove excess red tape while strengthening regulatory structures to facilitate competition and technological development in fields such as AI deployment, automated driving, and various remote operations, which would support a major transformation of blue-collar jobs facing acute labor shortages into more available white-collar work.
The Foreigner Issue
Takaichi created a polarizing buzz by starting her LDP presidential campaign criticizing foreigners for kicking deer in Japan’s historical Nara Park (near Takaichi’s hometown), along with an assertion that some foreigners who had been accused of crimes were having their cases dismissed due to a lack of translators. Neither of these claims could be verified. This rhetoric was an appeal to the LDP’s right wing, as well as the general public who had recently rewarded the far-right Sanseito party in the July elections. This was one of the three issues that drove a wedge between the LDP and Komeito. Regardless of how Japan’s coalition partner dynamics shake out, this issue will loom large.
Overtures to the Right Wing
In the July 2025 upper house election, the LDP lost the most seats while the far right Sanseito gained the most seats by riding a wave of misinformation and anti-foreigner rhetoric. Ishiba had taken a very centrist stance and not played to the party’s right wing during his term, so many analysts surmised that the LDP had lost its more conservative voters. Along similar lines, the LDP has never been particularly popular with the youth, and younger voters clearly gravitated toward the more conservative and far-right parties in July. This has played into its decreasing membership. Many LDP members heard feedback from their districts, particularly in rural areas, that the traditional conservative support base was weakening.
By selecting Takaichi (sixty-four years old) in a matchup against the younger Koizumi Shinjiro (forty-four years old), who also happens to be the son of popular reformist prime minister Koizumi Junichiro, the LDP chose to strengthen its conservative base. Party members from around the country consistently supported Takaichi over Koizumi in both the latest and previous elections, despite Takaichi not being the first choice of LDP Diet members.
Will this new emphasis allow the LDP to regain the conservative and right-wing support it lost while keeping the centrist support, or will it lose the center by leaning right? Much of this comes down to how representative LDP membership is of the general voting public. While the LDP does not release data about its members, most analyses suggest that LDP members tend to be far more conservative than the general public—indicated by Takaichi getting the most general LDP member votes over more moderate candidates in the past two LDP presidential elections.
Despite this apparent swing, Takaichi has filled key positions with experienced LDP elders who were prominent in the Abe administration. Most notable was her appointment of Aso Taro as vice president. Aso reportedly orchestrated his followers to support Takaichi in the run-off election after supporting other candidates in the first round. They are mostly not as hawkish or as far right as Takaichi has been, but they are solidly conservative. An important question for Japan’s international relations is whether Aso and his supporters will be able to position the LDP as more centrist—at least on history and wartime issues in order to maintain good relations with its neighbors. Early indications are that Takaichi will be somewhat more centrist. Her camp indicated that she would likely skip her regular visit to Yasukuni for its autumn event.
The LDP’s Election Rules Matter
In electing its leader, the LDP typically uses two methods. This matters because in both this election and the previous one, the result would likely have been different. The first method for LDP elections is “full spec,” consisting of votes by both LDP Diet members as well as LDP general members, who are Japanese citizens from around the country who paid their dues (4,000 yen, or roughly $26 per year at today’s exchange rate) for two years. Typically, when prime ministers resign, the LDP uses an abbreviated election in which only LDP Diet members and prefectural LDP organizations vote. This is faster, since it does not need to collect votes from general LDP members. The flip side is that general LDP members do not feel like they have much voice in the process of selecting the LDP’s leader, and therefore the prime minister.
In this most recent election and the previous election that selected Ishiba, the LDP used full-spec elections despite sudden prime ministerial resignations that would ordinarily trigger a simplified election. This matters because both last time and this time, Takaichi was the favorite among LDP general members, but she was not the most popular among LDP Diet members in the first round of voting. In the previous election, Takaichi and Koizumi had the most votes from Diet members. Ishiba came in third, but he was boosted by general party member votes to come in second, leading to a runoff between him and Takaichi, which he won. In this latest election, Koizumi and Hayashi Yoshimasa had the most Diet member votes, with Takaichi coming in third. However, Takaichi, followed by Koizumi, had the most party member votes, leading to a runoff between them. Had it been a simplified election, she may not have made it to the run-off round.
Economic Policy Recommendation: Sakaenomics as Abenomics’ “Third Arrow” reforms
Since Takaichi is positioning herself as a successor to Abe, she can take advantage of a relatively underappreciated aspect of “Abenomics”—its third arrow of structural reforms. That arrow consisted of annual documents from 2013 to 2020 that contained approximately 100 to 150 specific key performance indicators (KPIs) for each year. While many of the numerical targets and deadlines were modest or easily achievable goals, others were aspirational, such as increasing the number of women in executive and managerial positions. Many were technology oriented, such as using drones for infrastructure maintenance and increasing human-assist robotics in healthcare settings. About 40 percent were achieved, 25 percent revised, and the others were quietly dropped. However, the KPIs offered an unusually detailed roadmap for Japan’s future direction.
The KPIs served both as tools for policy discipline within the bureaucracy and as clear signals to the private sector about the government’s priorities. Some directly supported Japan’s emerging startup ecosystem by legitimizing venture capital and innovation initiatives. While often overlooked, these specific and forward-looking targets reflected Abe’s effort to steer Japan beyond its “lost decades,” creating a long-term, innovation-centered vision that shaped public-private collaboration and continues to influence Japan’s global narrative. Sakaenomics could emulate that by proactively articulating a compelling, specific future vision beyond her current promises of subsidies, tax cuts, and cash handouts.
Looking Ahead: Shared Social Pain Points and Technology Deployment
It is in Japan’s geopolitical and economic interest to cultivate a sustained and constructive relationship with South Korea. Following the groundwork laid by the unexpectedly successful summit between Ishiba and Lee, Takaichi has a path forward. She can help connect the two countries’ startup ecosystems and business sectors by focusing on the specific social challenges they are both facing, notably aging demographics and shrinking populations, and by focusing on technology deployment such as artificial intelligence. Demographic challenges can become technological opportunities: As both societies face unprecedented challenges of eldercare, mobility, communications, mental health, and simply running household with elderly members—work which has historically fallen upon women to provide as unpaid labor with the opportunity cost of limiting their professional activities—technology deployment is of paramount importance. These are growth industries in both countries, and if Takaichi can keep her far-right supporters and her own far-right rhetoric in check, there can be a constructive path forward.
Moreover, this approach of focusing on specific social pain points as avenues for collaboration will be useful in other international relationships. Japan’s severe labor shortage, which may be exacerbated by the populist backlash against foreigners, will lead to similar constraints that are being felt in the United States with its significantly curtailed immigration. Technology-focused companies may find opportunities by offering solutions such as remotely operated heavy machinery, automation of factories, and a broad transformation of blue-collar jobs into white-collar work. While the United States develops cutting-edge generative AI, Japan can play a significant role in deploying AI and automated systems in industrial settings.
Thus, while the Takaichi administration has many challenges externally, domestically, electorally, within her party, and among LDP members, there are constructive paths forward.
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