Japanese Prime Minister Shigeru Ishiba resigns

Japanese Prime Minister Shigeru Ishiba said today that he has decided to resign, Reuters reports.

This opens the possibility of a potentially long period of political paralysis at a sensitive time for the world's fourth-largest economy, the British agency writes.

Ishiba, 68, has ordered his Liberal Democratic Party - which has governed Japan for almost the entire post-war period - to hold a snap election for its leader, he told a news conference, adding that he would continue in office until a successor is chosen.

Since coming to power less than a year ago, Ishiba has overseen the loss of his ruling coalition's majority in elections for both houses of parliament, as voters expressed dissatisfaction with the rising cost of living.

He has so far resisted calls to resign after his latest election defeat in July, when he lost his majority in the upper house. Instead, he has focused on finalizing a trade deal with the United States in response to President Donald Trump's tariffs, which have rattled Japan's key auto industry and cast a shadow over already weak economic growth.

"With Japan signing the trade agreement and the president signing the executive order, we have crossed an important hurdle," Ishiba said, his voice trembling with emotion. "I would like to pass the baton to the next generation."

Concerns over political uncertainty last week led to a sell-off in the yen and Japanese government bonds, with the yield on the 30-year bond hitting a record high on Wednesday.

Speculation about Ishiba's fate has been further fueled by the Liberal Democratic Party's decision to schedule a vote for Monday on whether to hold a snap election for leader.

Who are the possible heirs?

While the new leadership race could bring additional problems to an economy hit by US tariffs, markets are more focused on the possibility of Ishiba being replaced by an advocate of looser fiscal and monetary policies, such as LDP veteran Sanae Takaichi, who has criticized the Bank of Japan's interest rate hikes.

Ishiba narrowly defeated Takaichi in the second round of last year's LDP leadership race. Shinjiro Koizumi, who gained popularity as Ishiba's agriculture minister in charge of trying to curb rising prices, is another possible successor.

“Given the political pressure that was building on Ishiba after the LDP’s repeated election defeats, his resignation was inevitable,” said Kazutaka Maeda, an economist at the Meiji Yasuda Research Institute.

"As for potential successors, Koizumi and Takaichi are seen as the most likely candidates. While Koizumi is not expected to make any major changes, Takaichi's commitment to expansionary fiscal policy and his cautious approach to raising interest rates could attract the attention of financial markets," Maeda said.

As the party does not have a majority in either house, it is not guaranteed that the next LDP president will also become prime minister.

Whoever becomes the new leader could decide to call a snap election to seek a mandate, analysts say. Although Japan's opposition remains fragmented, the far-right, anti-immigration Sanseito party made big gains in July's upper house elections, bringing once-marginal ideas into the political mainstream.

Nearly 55 percent of respondents in a Kyodo News Agency poll released on Sunday said there was no need to hold early elections.

Ishiba's final act as prime minister was finalizing a trade deal with the United States last week, under which Japan committed to $550 billion in investment in exchange for lower tariffs from US President Donald Trump.