Global Macro Research
Global Macro ResearchJapan continuity despite an election setback
Japan’s ruling coalition lost its majority in the upper house, weakening PM Shigeru Ishiba’s leadership. The outcome threatens the domestic policy agenda, complicates the trade talks with the US, and could trigger near-term bouts of market turmoil. But the longer-term outlook for Japanese assets looks stable.
Author
Sree Kochugovindan
Senior Research Economist
Duration: 1 Min
Date: Jul 21, 2025
Key Takeaways
- Japan’s ruling coalition lost its majority – securing 122 seats out of the 125 needed – in the upper house elections on Sunday.
- But the margin of the loss is not as significant as signalled in the polls. PM Ishiba will remain as leader, and the coalition will continue as before.
- However, this is a setback for the PM as the coalition must now negotiate with opposition parties on a range of domestic and trade policies.
- Near-term political uncertainty may weigh on markets. Bond yields have proved sensitive to deficit concerns and the current political backdrop has greater fiscal easing risks.
- However, authorities have policy tools in place to calm bond markets. The structural backdrop continues to favour equities longer term.
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