The LDP Leadership Race Could Reshape Japanese Politics

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However, if the LDP adopts policies that mirror those of Sanseito – centered on anti-immigration sentiment, populist rhetoric and anti-establishment posturing – it risks entering a downward spiral of seeing which party can be more extreme.

Sanseito is unlikely to relinquish its newly acquired electoral gains easily and will likely double down on its increased wage, anti-immigration and anti-establishment rhetoric. In turn, Takaichi, who has shown little hesitation in positioning herself as the party's most hardline voice, could find herself continuously escalating her policy promises, in order to stay ahead of the far-right.

This tit-for-tat cycle threatens to undermine one of Takaichi's central pledges to revitalize Japan's economy. Takaichi is running on claims that she stands“here today to lead Japan back to the pinnacle of the world” and that“I will resolutely pursue economic growth.”

Takaichi has shown signs that her premiership will likely shift back to the Shinzo Abe-style policies of old, given her close relations with the former prime minister and his allies, such as former Prime Minister Fumio Kishida.

However, Abenomics' success rests on the three arrows of 1) aggressive monetary policy, 2) flexible fiscal policy, and 3) structural reforms. Any hawkish immigration policies would be likely to impact its success negatively. In particular, the first and third arrows would be hindered by her heightened anti-immigration sentiment.

Abe's third structural reform arrow aims to, among other things, boost labor force participation by creating jobs via infrastructure projects funded through the first arrow and encouraging underutilized sections of society to participate in the workforce. Yet Japan's working-age population made up only 59% of Japan's population in 2024, according to data released by the Ministry of Internal Affairs and Communications . This is far lower than the 65% Organisation for Economic Co-operation and Development (OECD) average.

As such, Tokyo would be unable to rely purely on the domestic workforce to staff these projects fully. Therefore, without immigration to supplement the labor force, Japan would struggle to execute large-scale projects or meet the demands of Takaichi's structural reforms. The result could be stalled infrastructure plans, spiralling costs and delayed economic initiatives, all of which would weaken the effectiveness of Abenomics 2.0 at addressing Japan's current economic concerns.

The scenario above could result in higher government spending and an even more burdensome debt-to-GDP ratio. It could threaten a deflationary spiral and stagnating wage growth. All that would feed into public frustration. Such frustrations would likely be particularly palpable among younger voters, who are already disillusioned with the LDP.

Therefore, far from stabilizing the party's position, a Takaichi premiership could accelerate its decline and deepen the fragmentation of Japan's political landscape.

Limited leadership experience could thwart Koizumi's economic policies

A Koizumi premiership presents a different outlook. The 44-year-old, two-time cabinet minister is the son of a former prime minister and has been groomed his entire life for leadership. Despite his having failed in his previous attempt to become Japan's prime minister, his renewed campaign has seen him secure a 21% approval rating during the aforementioned Mainichi Shimbun poll.

While Koizumi is also an advocate of reimplementing Abe-style economic policies, his more progressive view mitigates the economic uncertainty that a Takaichi premiership would present. In contrast to Takaichi, Koizumi has said that“Japan's economy is in a transition phase from deflation to inflation” and that Tokyo's economic policy should also reflect this change.

One of his key policy promises is to ensure that wage growth accelerates“at a pace exceeding inflation, so consumption becomes a drive of growth.” While Koizumi has not given overtly concrete details on how he plans to achieve this goal, some clues may be found in his foreign policy agenda.

Koizumi has distanced himself from more conservative LDP traditions, such as visiting the Yasukuni Shrine. This decision has kept the door open for him to advocate for the continuation of Tokyo's current foreign policy stance on US-Japan relations and deepening economic cooperation with neighboring countries, such as South Korea.

In the case of South Korea, relations with Japan hit a tipping point in 2019 after South Korea initiated an informal trade ban on Japanese goods in response to disputes linked to Japanese colonial occupation of Korea. However, relations between the two countries have softened in recent years, opening the door for a more progressive Prime Minister Koizumi to initiate deeper economic cooperation with liberal South Korean President Lee Jae Myung.

The deepening of economic ties with countries such as South Korea would likely be in pursuit of his goal of enhancing Japan's domestic supply and production capabilities, expanding exports of agricultural, forestry,and fisheries products and increasing security cooperation with like-minded countries.