What the Collapse of the Ruling Coalition Means for Japan

Japan’s political landscape has entered uncharted territory. The ruling Liberal Democratic Party has lost its coalition partner, Komeito, ending a 26-year alliance that had helped anchor Japan’s government and ensured stability for much of the past quarter century.

Now, Sanae Takaichi, who was elected as the LDP’s first female leader in early October, faces a pivotal moment. She could make further history as Japan’s first woman prime minister, risk becoming one of the country’s weakest leaders in the postwar era, or miss out on the role entirely.

The upheaval comes at a time when Japan’s economy is already under strain, grappling with persistent inflation, pressure from the Trump administration to invest more in the US, and ballooning public debt — all while the population continues to age. The coalition split has jolted financial markets, sending the yen swinging and leaving investors on edge over Japan’s economic outlook, the Bank of Japan’s next steps and the nation’s revolving door of prime ministers.

How did the ruling coalition fall apart?

Komeito abruptly quit its alliance with the LDP on Oct. 10. The breaking point came from frustration over the LDP’s handling of a campaign funding scandal — Komeito said the ruling party hadn’t done enough to rebuild public trust. The situation worsened when Takaichi said she would no longer punish lawmakers implicated in the scandal.

During a tense meeting just before the split, Komeito leader Tetsuo Saito pressed Takaichi on whether she would support his party’s proposal for stricter laws on political financing. When she asked for more time to decide, Saito declared his party was leaving the coalition, ending an era of political partnership.

What are Takaichi’s options?

Saito shut down the possibility of further negotiations, despite Takaichi wanting additional talks, saying his party would neither back LDP candidates in upcoming elections nor support Takaichi’s bid to become prime minister — though he left the door open to cooperating on specific policies.

That leaves the LDP with a steep challenge to govern effectively. The LDP-Komeito coalition had already lost its majority in both chambers of parliament. Now, Japan’s legislature has become a far more unpredictable arena and it will be even harder for Takaichi — or any LDP leader — to pass legislation, get budgets approved or push through reforms.

The LDP will now need support from multiple opposition parties to secure a majority in the House of Representatives — the more powerful lower chamber that has the ability to override the rejection of a bill by the House of Councillors.

Takaichi faces a shortfall of 37 seats to reach a majority in the lower house, and 25 seats in the upper house. Without the support of Komeito, she now needs the backing of both the Japan Innovation Party (better known as Ishin) and the Democratic Party for the People to secure control of parliament.

Ishin holds 35 seats in the House of Representatives and 19 in the House of Councillors, while the DPP controls 27 and 25 seats, respectively.

Is Takaichi still likely to become Japan’s prime minister?

Yes, she’s still likely to win the parliamentary vote to elect a new leader, mainly because Japan’s opposition is so fragmented. A candidate doesn’t need an outright majority to become prime minister. If no one receives more than 50% support, the top two candidates compete in a runoff. That means the leader of the LDP has a good chance of prevailing because the party is the biggest voting bloc.

But the shifting of alliances means Takaichi can’t assume victory is guaranteed. DPP leader Yuichiro Tamaki could prove to be a wild card. While his party is relatively small, the main opposition Constitutional Democratic Party hinted that it might consider voting for him, even before Komeito quit the coalition.

Tamaki has already been signaling to Komeito that their parties share common ground on policy issues. And given that the CDP and DPP once belonged to the same party, that history could make cooperation between them more plausible.

What does the political turmoil mean for Japan?

Japan is facing a leadership vacuum just as frustration grows over the rising cost of living. Debate is heating up over whether to cut taxes to ease inflation — a popular idea, but one that would strain the government’s finances.

Even if Takaichi becomes prime minister, her economic stimulus plans could face gridlock in the divided parliament. Any additional spending will likely require a supplementary budget, which must be approved by parliament.

Externally, the stakes are high. The security environment is more precarious than at any point since the Second World War as Japan is surrounded by an emboldened China, Russia and North Korea.

Compounding the uncertainty, Japan’s most vital partnership — its alliance with the US — has faced renewed strain since President Donald Trump returned to office, deepening doubts about the Japanese government’s ability to navigate an increasingly volatile global landscape.

Trump is expected to visit Japan in late October. Any sign of weakness in the country’s leadership could undermine its standing in trade discussions with the Americans. While the two sides have signed a trade deal, a key pillar of the agreement — a $550 billion fund through which Japan will invest in the US — has yet to get off the ground.

What are the implications for Japan’s economy?

The economy is at a crossroads, trying to shift from decades of deflation to a sustainable growth model. Takaichi, a protege of late Prime Minister Shinzo Abe, has long favored loose monetary policy and bold fiscal spending, though she’s been softening that stance recently. As political uncertainty mounts, it will become increasingly difficult for policymakers — particularly at the Bank of Japan — to act decisively.

Japan’s economy is estimated to have contracted in the third quarter under the weight of Trump’s tariffs, following five straight periods of growth. That may give Takaichi justification for more fiscal support in an upcoming economic package. Still, over the longer term, she’ll have to contend with a host of challenges — from stubborn inflation to rising trade tensions.