TOKYO — As Japan’s answer to Margaret Thatcher seems about to ascend to the premiership, political wonks everywhere are reaching for the popcorn.
With Donald Trump’s trade war and China’s increasing dominance shaking up the global order, the entrance of a strong-willed conservative Japanese leader — the first female one, no less — makes for quite a wildcard.
For example, Sanae Takaichi, 64, recently discussed renegotiating the tariff deal that outgoing Prime Minister Shigeru Ishiba forged with US President Donald Trump. She’s a long-time China critic who makes regular visits to Yasukuni, a Tokyo shrine that honors Japan’s war dead.
Suffice to say, Trump’s team spent the weekend on Signal text chains and Chinese leader Xi Jinping can’t be happy about her win as Liberal Democratic Party (LDP) leader.
Even the milestone of the first female Japanese leader is complicated by the fact that Takaichi is no one’s idea of a progressive feminist. The self-described “Iron Lady” opposes married couples using separate surnames, something for which the female masses have clamored for years. She’s dismissive of allowing a woman to ascend to the Chrysanthemum Throne, even though Japan has had empresses in the past. She opposes same-sex marriage.
True, Takaichi has pledged to narrow Japan’s gender gap — and name enough women to her Cabinet to put Tokyo in league with Nordic countries. But then we heard similar promises from Takaichi’s political hero and mentor, Shinzo Abe.
In December 2012, the late Abe led Takaichi’s LDP back to power with a bold plan to revitalize an aging and uncompetitive economy. A major pillar of “Abenomics” was empowering the female half of Japan’s 125 million people. He aimed to create a “society where all women shine.”
It was a wildly optimistic moment for Japan’s other half. For years, leading economists like Kathy Matsui, formerly of Goldman Sachs, have argued that nations and companies that best utilize their female workforces are the most vibrant, efficient and prosperous.
All available research from the International Monetary Fund, World Bank or investment banks worldwide confirms that underutilizing female talent is akin to tying one hand behind a nation’s back.
As far back as 1999, Matsui argued that Japan’s gross domestic product (GDP) would increase by as much as 15% if the female labor participation matched that of men. Back in 2012 and 2013, one of investors’ justifications for piling into Nikkei 225 Stock Average companies was the supposed feminist groundswell to come.
Sadly, though, the LDP’s embrace of “womenomics” ended up being a shiny object in itself.
In 2012, Japan ranked 101st in the World Economic Forum’s gender equality index. Today, it ranks 118th out of 148 countries, a 17-point backslide. In terms of women holding political office, Japan trails Saudi Arabia by 18 spots, according to the Geneva-based Inter-Parliamentary Union.
Soon enough, though, the focus will shift to Japan’s slowing economy, which Tokyo estimates will grow at best by 0.7% this fiscal year. Last week brought news that Japan’s unemployment rate rose to a 13-month high of 2.6% in August.
“Joblessness did indeed pick up again in August, but the participation rate didn’t bounce back, adding to the many signals that Japan’s labor market is not as strong as commonly thought,” says Stefan Angrick, head Japan economist at Moody’s Analytics.
Though Japan’s employment data have been uncharacteristically choppy since the Covid-19 pandemic, Angrick says, “the trend shows that employment conditions have softened. The ratio of active job openings to applicants slid to 1.2 in August, far below the 1.35 ratio seen in early 2023, or the pre-pandemic average of 1.6. The ratio of new openings is also falling. And those in work are putting in fewer hours than before the pandemic.”
The bottom line, he says, is that “things are unlikely to improve from here. A weak domestic economy, US tariffs, and policy uncertainty at home and abroad will weigh on hiring and pay. The US-Japan trade deal struck in July locks in a 15% tariff rate, which we estimate will slice at least 0.5% off GDP. And there is little domestic demand to compensate for the deteriorating external outlook.”
It hardly helps, Angrick adds, that “sticky inflation is eroding nominal wage gains, keeping consumer spending and overall economic growth weak. All told, Japan’s employment outlook is far more challenging than the headlines suggest.”
In other words, Takaichi will not get much of a honeymoon once entering office. Not with China exporting deflation and Trump’s tariff plans going forward anyone’s guess.
Japan’s bond market isn’t in a good place as Takaichi takes the reins. Her unwavering support of Abenomics suggests increased borrowing to finance a return to the assertive fiscal stimulus tactics that left Japan with the largest debt load among developed countries. Tax cuts, too, perhaps.
The LDP doesn’t currently control either house of parliament. Takaichi must now cajole opposition parties to form a coalition government to lead the country. The price for those deals could be cuts in consumption and other taxes, a step sure to increase a debt that’s already at 260% of GDP.
Already, the so-called “bond vigilantes” have been triggered by chatter about tax cuts in Tokyo. Last month, such fears pushed 20-year Japanese government bond (JGB) yields to their highest levels since 1999.
Over at Bank of Japan headquarters, Governor Kazuo Ueda must be bracing for the political clashes to come. Even last week, BOJ officials were signaling that the most assertive monetary tightening cycle since 2006 and 2007 continues.
David Boling, analyst at Eurasia Group, notes that when “she ran for LDP president last year, she famously characterized a rate hike at that time by the Bank of Japan as ‘stupid.’ Her views could set her up for friction with BoJ Governor Kazuo Ueda, who is guiding the BoJ down the path of gradual monetary policy tightening, and make the central bank more cautious about the speed of interest rate hikes.”
Takaichi is sure to push back assertively, if not publicly demand that Ueda consider cutting rates. For all its bold talk of cutting bureaucracy, increasing innovation and boosting productivity, modernizing labor markets and empowering women, Abenomics was almost linearly focused on monetary easing and a sharply weaker yen.
Sure, the LDP managed to prod Japan Inc to improve corporate governance and increase shareholder value. But China could also claim it was the catalyst. It was in the immediate aftermath of China surpassing Japan in GDP terms that convinced CEOs in Tokyo and Osaka that change could no longer be delayed.
But broadly speaking, the Abenomics that will likely form the core of Takaichi’s growth strategy was a dud. Even before Abe detailed it in 2012, it was merely a list of obvious things that Japan should’ve done a decade earlier — in 2002 — to raise Japan’s competitive game.
Now, as 2026 beckons and China continues to invest big in semiconductors, artificial intelligence, electric vehicles, renewable energy, biotechnology, robotics, greater supply chain efficiency and green infrastructure, Takaichi’s LDP needs a Plan B. If she has one, she might want to share it soon.
A big wildcard is when Takaichi meets Trump. Last month, she voiced dissatisfaction with Ishiba’s tariff arrangement with Trump. Not so much the 15% rate but the US$550 billion “signing bonus” Trump demanded from Tokyo.
In a local television interview, she said, “We must stand our ground if anything unfair that is not in Japan’s interests comes to light in the process of implementing the deal. That includes a potential renegotiation.”
Only time will tell if Takaichi was merely speaking off the cuff or if she plans to clash with Trump. If she follows the Abe playbook, the two leaders will get along famously.
More than any world leader, Abe perfected the art of winning Trump’s favor with flattery and sitting with him in the Group of Seven lunchroom when others wouldn’t and nominating him for the Nobel Peace Prize.
In the end, Japan got little in return. Trump still pulled out of the Trans-Pacific Partnership, the trade pact at the center of Japan’s efforts to rein in China. Trump didn’t give Japan a pass on tariffs, either.
Takaichi has her work cut out to find a working relationship with a US leader trying to extort the annual GDP of Ireland from the Japanese people. And geopolitical wags everywhere are making popcorn for the show ahead.
Follow William Pesek on X at @WilliamPesek
