At a meeting between the leaders of the Liberal Democratic Party and New Komeito last Friday afternoon, Komeito gave notice of its withdrawal from the coalition.
The 26-year-long coalition government between the LDP and Komeito has come to an end. Since the ruling party will have a smaller number of members, whether or not Takaichi will be elected prime minister has become more tenuous.
So far, the financial markets have been calling it the “Takaichi trade,” which has produced a weaker yen and higher stock prices, but if Mr. Takaichi cannot be elected prime minister, the basic premise will be different.

The question now is who will be chosen as the leader of both houses of the Diet, and although Takaichi’s chances are still high, the possibility of a change of government has emerged, depending on how well the opposition parties hold together.
If Mr. Tamaki of the KDP becomes prime minister, the annual income barrier claimed by the KDP will be reduced to 1.78 million yen, and gasoline tax cuts will also be realized.
In that sense, it would be a factor in weakening the yen since it is a fiscal expansion, but he would not tie the Bank of Japan’s hands and feet in changing its policies as Takaichi has done.

It is unfortunate that the simple Takaichi trade is over, but we will have to watch the Japanese political situation to predict future market developments.