Before the election of Sanae Takaichi, Ishiba Shigeru took office during a period of political instability. At that time, the LDP faced problems include electoral defeats, strained alliance relations, and internal factional conflicts. His term of office can be seen as the transitional period of Japan, because he tried to stabilize the position of the LDP, address the issue of living costs for the general public, the aging society and political legitimacy. In the field of economy, his government adopted moderate stimulus measures and attempted to maintain the current policy mix in Japan that was established after Abe’s administration.

In contrast to Ishiba’s moderate image, Sanae Takaichi’s image is generally regarded as more conservative and tough, especially in the field of safety, constitutional amendments and immigration policies. The LDP she took over had just lost its long-term partner, the Komeito Party, which has broken up because of scandals and policy differences after 26 years. Subsequently, the LDP realigned with the more right-wing Japan Innovation Party (Justice Party). Therefore, the election of Sanae Takaichi has both symbolic meaning and substantive significance. The only threat is that her government would initially face a fragile majority in parliament and limited support from the coalition, which might limit its flexibility to a great extent.

After Sanae Takaichi being elected, the market responded positively: the Japanese stock market Nikkei 225 Index experienced a significant rise because of expected reform measures beneficial to business, tax reduction policies, and increased defense spending. According to analysts, the rise is based on the confidence of investors on the expectations for the new round of reform agenda, the potential revival of nuclear energy, and the confidence in “strong leadership”.

Based on her public statement and the recently reached alliance agreement, some essential economic topic has been gradually clear. Takaichi’s new government seems to carry out a strategy combining tax cuts and increased public spending, which aims at stimulating domestic consumption and alleviate the persistent impact of inflation. The agreement of alliance emphasizes the financial policy that targets at encouraging household consumption and supporting small and medium-sized enterprises through targeted tax relief and infrastructure investment.

Another key element in her economic outlook is the close connection between national defense and economic security. Takaichi has long advocated for an increase in defense spending. She pointed out that strengthening Japan’s self-defense capabilities is not only the necessary conditions for safety, but also an economic strategy. Her government aims to strengthen domestic manufacturing, create high-skilled jobs, and promote technology exports through expanding defense procurement and related industries. The analysts believe that it is beneficial to Japan’s broader industrial base.

Her alignment with the Japan Innovation Party (Ishin) also indicates that she will re- emphasize the structural reforms and deregulation. According to analysts, she would contribute to simplifying commercial regulations, especially within the Osaka Economic Zone, and making greater efforts in terms of political funding transparency. This is not only the nod of the Ishin’s reformist reputation, but also the response to the recent public dissatisfaction over the corruption scandal of the LDP. The policy related to the energy is another vital pillar of her agenda. The significant increase in energy prices and continuous supply concerns lead to the discussion among people about restoring Japan’s nuclear energy industry. The market has positive response to her hint that the government will reduce regulatory restrictions on nuclear energy and diversify Japan’s overall energy structure. This approach shows the pragmatic effort to ensure stable energy supply while enhancing industrial competitiveness.

Despite the prevailing optimism surrounding her economic plan, she will face great number of challenges. Her new coalition government holds only a slim majority in the parliament. Additionally, though the cooperation with Ishin shares the same reform philosophy, it has not yet been tested in practice. The deadlock of legislation might seriously undermine her ability to implement large-scale policies. Expect for the political factors, the deeply-rooted structural problems in Japan still persist. Japan is still facing with issues including population aging, slow productivity growth, and persistent deflationary pressures. The real situation of population and economy will make the effort of achieving sustained growth more complex. From external, the global situation is still full of uncertainty. The inflation trend, supply chain disruptions, and geopolitical risks, particularly in terms of relations with China, may restrict Japan’s growth-promoting measures and increase the risk of external shocks for Japan.

Finally, there is the paradox between gender and human capital. Though the rise of Takaichi marks a historic breakthrough for Japanese female politicians, the broader gender gap is still one of the most serious obstacles hindering long-term productivity and labor force renewal. Her conservative social value often resists progressive gender reforms, which might limit the role that its government can play in releasing the underutilized female labor force in Japan. This is a key factor that has long been regarded by economists as being of crucial importance for Japan’s economic growth. These factors will determine the prospects and risks of Japan’s economic chapter under the leadership of the new prime minister Takaichi. Her political model integrates financial ambition, structural conservatism, and political vulnerability, which will be decisive when it comes to whether the new historically significant prime minister can realize the real economy revolution.

Under the guidance of Ishiba, the emphasis was placed more on stable and gradual stimulus measures instead of the bold structural reform. While the government of Takaichi shows a more positive attitude, because it tries to integrate national defense, economic security and reform into a unified framework. However, it still exists some risks: her government might place more emphasis on short-term stimulus measures rather than addressing the deep-seated structural problems. And thus, the economy might be increased because of the confident market and the words about revolution, but the long-term structural benefits have not yet been guaranteed.

Takaichi Abe Shinzo’s well-known student and she will continue the “active pacifism” policy of Abe, but she is more resolute in matters such as constitutional amendments, defense spending and national security. The form of new coalition with Ishin and the withdrawal of Komeito, which had been more moderate on security, indicates that Japan will have firmer stance in the field like handling issues related to China and North Korea, as well as the alliance relationship between Japan and the United States.

The alliance relationship between Japan and the United States might be the first decisive test of the leadership of Takaichi. Within weeks of taking office, Takaichi will host a high-profile visit from U.S. President Donald Trump, which highlights the renewed emphasis on economic and security cooperation between Tokyo and Washington. This visit might set the tone for the bilateral relationship and clarify how the Takaichi government intends to find a balance between Japan’s growing defense responsibilities and its domestic economic priorities.

The core of Japan-U.S. agenda is the controversial issue of defense burden-sharing. From a long time, Washington has been consistently urging Tokyo to bear more costs related to the joint security commitment and regional deterrence, especially under the circumstance that Japan is trying to enhance its military capabilities. The well-known stance of Takaichi government indicates that she is more willing to meet these expectations from U.S. However, it needs the careful political management within the country because the public still maintains a cautious attitude towards increasing defense spending.

Another key point will be the future direction of economic cooperation. Japan and U.S. have discussed about a large-scale investment and trade framework with an approximate value of 550 billion US dollars recently, which covers technical cooperation, clean energy, and supply chain resilience, etc. Takaichi government expects that this framework will be used to attract American capital into strategic sectors and strive to secure greater access opportunities for Japanese products in the US market at the same time. Whether can the government under her guidance maintain the momentum of economic growth successfully will depend on whether she can effectively coordinate these trade and investment goals with national security requirements.

Takaichi’s policy to China will also have impacts on the diplomatic landscape of Japan. She criticized Beijing’s military expansionist actions directly and support Taiwan firmly, which might inject new tensions into the fragile balance of power in that region. This tougher stance might lead to the economic cooperation between Tokyo and China becoming more complex, because China remains Japan’s largest trading partner, especially in the field like semiconductor supply chain and export control. However, her position is in perfect alignment with Washington’s strategic goals, which means that Japan might become a more dominant partner and integrate into the broader Indo-Pacific security framework led by the United States under the guidance of Takaichi.

Beyond the bilateral relationship, the role of Japan under Takaichi’s leadership within regional frameworks such as APEC, the G4 group and ASEAN are expected to change as well. Observers predict that the diplomatic strategies of Japan will shift from focusing on the economy gradually towards a direction that places greater emphasis on strategic and security cooperation. The transformation shows that the policy made by Takaichi differs from the pragmatic economic diplomacy style of the previous leaders, which helps Japan to be become a more proactive player in shaping the regional security order.

The challenges to Takaichi are not only from the U.S. The relationships between China, South Korea and other partner countries in the Indo-Pacific region will test her ability to handle historical sensitive issues and contemporary power competition. With China, her tough attitude might strengthen the tensions related to Taiwan, supply chain dependence, and export restrictions. Given to the tight trade relationship between Japan and China, her attitude might entail significant economic risks. With South Korea, her conservative view may reignite tensions over long-standing historical and territorial disputes, which destroys the limited diplomatic results in recent years eventually.

At the same time, it seems that Takaichi is deliberately aiming to strengthen Japan’s strategic partnership network in the Indo-Pacific region. Under her guidance, Tokyo might deepen its security cooperation with Australia and India. It will expand joint military exercises and intelligence sharing and promote new technological and energy cooperation simultaneously. This broader “Indo-Pacific” strategy reflects her belief that it is necessary for Japan to play a leading role in ensuring regional stability. To gain this purpose, both economic cooperation and Collective defense and strategic coordination are necessary.

To sum up, Takaichi’s diplomatic agent shows that she is taking a decisive step towards a more security-oriented foreign policy. Though her tough attitude might strengthen the alliance between Japan and the United States and increase its regional influence, it might also intensify the tensions with key neighboring countries. How does she effectively balance these conflicting demands will determine whether Japan plays a stabilizing role or becomes more fragmented in the Indo-Pacific region.

In the short term, the following 12 months will be vital to examine the leadership of Prime Minister Sanae Takaichi. The first priority of her is that she should maintain the unity within the fragile coalition government and ensure that the parliament will approve the crucial bill, including economic stimulus measures, tax cuts, and increased defense spending. These early policy victories will demonstrate the political stability and help those investors who have so far responded positively to her election feel reassured. The near future of Japan’s economy will depend on factors such as the growth of the gross domestic product, inflation trends, corporate investment, and market confidence. All of these will reveal whether her government can the campaign promises be transformed into actual progress.

In the medium to long term, Takaichi will face with more profound structural challenges, which will determine the future development trajectory of Japan. On the domestic front, she has to solve the long-standing issues in Japan, such as the persistent productivity gap, the rigid labor market, and the persistently low participation rate of female labor force. All these problems have been solved successfully during the terms of her predecessors. Her promise to constitutional amendments, particularly the revision of Article 9 which pertains to Japan’s pacifist stance, could redefine Japan’s military and international identity, but it might also trigger political controversy.

Both the energy and industrial policy will also be vital. As the global economy shifts towards a low-carbon and supply chain resilience-oriented direction, Japan has to decide whether it is going to expand its nuclear energy program and invest more actively in clean energy technologies or strengthen domestic manufacturing industry. In the international, it seems that Takaichi determines to change Japan’s role in the Indo-Pacific region from that of a partner to a leader who plays an active role in regional security and strategic coordination.

The election of Takaichi is a meaningful event, but the larger challenge of Japan is in the future. Whether she can transform the symbolic breakthrough into substantive progress, like economic growth and gender equality is a big deal. She also needs to manage fragile alliance relationships properly and deal with challenging global environment. The world will pay attention to Japan’s following steps closely.

By ZHU Guoxin