Japanese PM Fumio Kishida to step down next month

Japanese Prime Minister Fumio Kishida on Wednesday backed out of a race to lead his Liberal Democratic Party (LDP) in September, effectively stepping down as premier.

The leader of the LDP will virtually become Japan’s prime minister because of the dominance of the party and its coalition partner, Komeito, in Parliament.

“I will devote myself to supporting the new leader selected through the presidential election as a foot soldier,” Kishida said at a news conference.

Kishida’s decision will pave the way for a new leader who may back the Bank of Japan’s (BoJ’s) recent efforts to return to a more normal interest rate policy.

BoJ this month raised its benchmark interest rate from 0-0.1% to 0.25%—only the second increase in 17 years—sending shockwaves through global markets, including India.

The rate hike led to yen carry trade unwinds, boosting the yen against the dollar and sinking stocks.

In a carry trade, investors borrow money in a currency with a low interest rate (yen) and invest in another currency offering higher returns.

Carry trades in yen have been popular in emerging markets as volatility was low, with investors betting that Japanese interest rates would stay at rock bottom.

The latest shifts in the Bank of Japan’s monetary stance could end that advantage.

Losing currency

Meanwhile, top contenders to replace Kishida are former defense minister Shigeru Ishiba, minister for digital transformation Taro Kono, and minister for economic security Sanae Takaichi, according to Japanese media.

Kishida’s popularity took a beating as the governing party got embroiled in a kickback scandal amid inflation concerns and a slump in the domestic currency.

The PM, who came into office in October 2021, said the series of political scandals has eroded trust among public and weighed on his decision.

“As leader of the party, I have no hesitation in taking responsibility for what its members did,” Kishida said, while adding that he had been thinking of stepping aside since the scandal surfaced.

A NHK poll this month put Kishida’s support rate at 25%, down from 29% in November last year, just before the political funding scandal surfaced.

The general election is not scheduled until next year, though some Japanese surveys show the Constitutional Democratic Party, the main opposition, gaining traction.