Japan's Ruling Party Loses Grip As Trump Tariff Deadline Looms: What Happens Next?

The road to Japan’s trade deal with the U.S. just got longer and more winding as Prime Minister Shigeru Ishiba’s coalition lost its majority in the upper house following the election held on Sunday.

It was only in late October that Ishiba’s Liberal Democratic Party lost the majority in the lower house it had held since 2012. 

The prime minister had taken a tough stance on the tariff standoff with the U.S. with an eye on the election, but that bet hasn’t paid off. Even as Japan’s exports suffered due to the U.S. tariffs on key items such as steel and autos, he had maintained that he would not prioritize reaching an early agreement at the expense of the country’s national interest.

A Wall Street Journal report stated that people this time shrugged off the tariff threat and focused on domestic issues, such as inflation and immigration.

The Japanese stock market remained closed on Monday due to the “Marine Day” holiday. The yen firmed up against the euro and the dollar following the election. 

The SPDR S&P 500 ETF (SPY), an exchange-traded fund that tracks the S&P 500 Index, has gained 7.72% this year, a move nearly identical to that of the iShares MSCI Japan ETF (EWJ). The SPY was among the most active tickers on Stocktwits late Sunday. 

The LDP had to secure 60 seats to win a majority in the upper house, which is the less influential of the two houses in the Japanese Parliament, called the Diet, but could muster only 47 seats, the report said, citing Japanese national broadcaster NHK 

In an upset of sorts, the right-wing party Sanseito ended with a tally of 14 seats, finishing fourth in the process. The LDF could still stay in power with the support of smaller parties, given that it is still the largest single party.

Ishiba flagged on Sunday that he would stay on despite the bleak poll verdict for his party, as the talks with the U.S. were at a critical moment. U.S. President Donald Trump has set an Aug. 1 deadline for Japan to strike a deal with the U.S. or face a 25% levy on imports from the far eastern Asian nation. The rate is in addition to the existing sectoral tariffs. 

In a television interview aired on Sunday, Ishiba reportedly said, “We are currently engaged in truly down-to-the-wire tariff negotiations with the U.S.”

“I myself have met face-to-face with President Trump twice and spoken with him numerous times on the phone. This is something we mustn’t let go to waste.”

The Journal stated that the election results have weakened Japan’s position in its negotiations with Washington, particularly when it comes to making concessions on sensitive sectors such as agriculture and autos.

Among the main areas of contention between the two countries are the auto tariffs that have been set at 25%.

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