Sanae Takaichi, leader of Japan's ruling Liberal Democratic Party, is about to become the country's first female prime minister - the LDP and the Japan Restoration Party officially signed a coalition agreement on Monday (October 20), providing enough support for Sanae Takaichi to win the parliamentary election, and she will be elected at noon on Tuesday.



According to CCTV, the Japanese government held a cabinet meeting this morning (local time) on the 21st, announcing the collective resignation of the Ishiba cabinet. The House of Representatives and the House of Councillors will hold elections for the prime ministerial nomination on the afternoon of the 21st (noon Beijing time). Given that the Liberal Democratic Party and the Japan Restoration Party have reached an agreement on a coalition government, and the opposition parties have yet to agree on a unified candidate, Sanae Takaichi, who succeeded Ishiba Shigeru as LDP leader earlier this month, is likely to become Japan's new prime minister and form a cabinet.

Leaders of both parties expressed their stance: work together to promote reform

At the signing ceremony on Monday, Nikkei reported Takaichi as saying, "As partners committed to realizing a common national vision, I eagerly look forward to working with you to strengthen the foundations of Japan's economy and build this country into a country that can be entrusted to the next generation."

Yoshimura Hirofumi, leader of the Japan Restoration Party and governor of Osaka Prefecture, said he made her prime ministership possible. Earlier on Monday, he said, "As a reformist party, we share the same desire to advance the reforms we have advocated for and improve Japan." He spoke with Takaichi on Monday morning and informed him, "We have agreed to form a coalition government. Let's work together to move Japan forward."

Opposition coalition fails to consolidate, coalition gains key support

With further support from her center-right allies in the ruling LDP coalition, Sanae Takaichi is considered the most likely candidate to gain the most support. The Nikkei reported that an attempt by the three opposition parties to jointly field a single candidate failed due to the Japan Restoration Party's decision to support a senior LDP politician.

Yoshimura said that for now the party will support the cabinet from the outside without holding a cabinet position.

"A coalition government is essentially a collective consisting of the ruling party and its cabinet, and our goal is to exert influence in the legislature as part of a coalition government," Yoshimura said.

The LDP and the Japan Restoration Party did not win a majority in either house of parliament, but they still came close to a majority by a narrow margin: they hold 231 of the 465 seats in the House of Representatives and 120 of the 248 seats in the Senate.

However, if they can bring other smaller political groups in parliament into the coalition, they can still secure a majority, making it easier to pass bills and budgets. The LDP has extended an olive branch to the right-wing populist "Partido Partido" and other small political forces.

Sanae Takaichi stated that a two-party coalition would form the foundation of the government. "We will thoroughly coordinate our policies with the LDP and the Japan Restoration Party and responsibly submit them to the Diet for deliberation. Afterwards, given the presence of like-minded opposition parties, we will encourage broad participation and meticulously refine each bill."

Members of the Japan Restoration Party will vote for Sanae Takaichi in a parliamentary election for prime minister on Tuesday, following the resignation of incumbent Prime Minister Shigeru Ishiba and his cabinet. Takaichi will form a cabinet on the same day .

The election of the new Prime Minister will be held in separate votes in both chambers of Parliament. If no candidate secures a majority in either chamber in the first round, the two candidates with the highest number of votes will advance to a runoff. If the results differ between the two chambers, the decision of the lower chamber will prevail.

Policy consensus and controversy coexist: reform covers a wide range of areas

In Monday's agreement, the Japan Innovation Organization secured "near-unanimous agreement" on most of the 12 policy areas it called for reforms . According to party co-leader Fumitake Fujita, the policies cover a wide range, from social security reforms to the creation of a "second capital" to relocate some government and economic functions out of Tokyo.

"We will move forward as a coalition - even though we will be forthright in expressing our dissatisfaction, we must pledge to work together in partnership and resolutely achieve our shared goals for Japan's revitalization," Fujita told reporters after a meeting with party colleagues on Monday.

The agreement stipulates that the new government will establish a Government Effectiveness Bureau to comprehensively review tax incentives and subsidy policies and cancel measures deemed ineffective.

The Japan Restoration Party's demand to reduce the number of Diet members, which the party called "a gateway to reform," was also included in the agreement. The agreement states that each party "will strive to achieve a 10% reduction in seats in the House of Representatives during the upcoming Diet session." However, the proposal has already caused political ripples among the parties.

However, Fujita said that the two parties still have differences on the two policies of "exempting food from the 8% consumption tax for two years" and "banning political donations from companies and groups." The two parties will set up an intra-party consultation body to continue to advance policy discussions.

The LDP's collaboration with the Japan Restoration Party comes after its longtime ally, Komeito, announced the end of its 26-year ruling coalition, plunging Japanese politics into turmoil. The decision triggered a fierce scramble among parties to form a new government to succeed the LDP's Shigeru Ishiba cabinet.

Both the Liberal Democratic Party and the Japan Restoration Party are conservative, and the two parties share the same stance on some policy priorities, such as constitutional reform, for example, both emphasize the importance of maintaining the imperial bloodline through male succession.

Short-term policy priorities and their impact on the yen

In the short term, the LDP and Japan Restoration Party will enact legislation to cut the gasoline surcharge and pass a supplementary budget to implement price-rising measures during the Diet session , which will begin later on Tuesday and last until mid-December.

The two sides also agreed to strengthen Japan's intelligence capabilities, including upgrading the existing Cabinet Intelligence Office to give it more authority and establishing a foreign intelligence agency.

"The agreement incorporates what the LDP and the Japan Restoration Party and other parties had previously agreed upon," Takaichi said. "I believe this coalition government is crucial for moving Japan's politics forward effectively."

The appointment of Sanae Takaichi as Prime Minister and the formation of a coalition government signaled a doubling-down on Japan's "Abenomics" policy mix. This prospect exerted significant downward pressure on the yen in the short to medium term, providing momentum for the dollar's rise against the yen. Initial market optimism (as exemplified by a surge in the Nikkei index) masked underlying structural headwinds. On Tuesday, the dollar rose approximately 0.2% against the yen, extending its gains from the previous two trading days.



(USD/JPY daily chart, source: Yihuitong)

The market should pay attention to the introduction of its specific policy plans and the Bank of Japan's response under government pressure, while being wary of official intervention that may be triggered by excessive exchange rate fluctuations.

At 10:41 Beijing time, the US dollar was trading at 151.06/07 against the Japanese yen.