Japan's Deepening Political Woes Cloud Budget, Rate Hike Timing

Ruling LDP Vulnerable to Calls for Big Spending and Loose Monetary Policy

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TOKYO - Japan's deepening political uncertainty risks prolonging policy paralysis that could affect the drafting of 2025's budget and the timing of the central bank's next interest rate hike, analysts say, clouding the outlook for the fragile economy.

Prime Minister Shigeru Ishiba is facing increased calls from within his ruling Liberal Democratic Party (LDP) to step down and take responsibility for the party's huge defeat in an Upper House election in July and a Lower House vote in 2024.

While Mr. Ishiba has denied he has any plans to resign, his fading support has triggered inevitable questions about his political future and analysts say a leadership change would likely have implications for the outlook for fiscal and monetary policy.

In a meeting on Aug. 8, lawmakers decided to consider holding a rare leadership race even with the party head, Mr. Ishiba, still presiding.

Under LDP rules, such a race would take place if the majority of the party's lawmakers and regional heads agreed to hold one.

But it is uncertain how long it would take for the party to decide, according to lawmakers and government officials familiar with the procedure.