Japan's Prime Minister Fumio Kishida has announced his intention to step down next month, citing declining public trust due to political scandals and rising living costs that have plagued his three-year tenure. At a press conference, Kishida expressed that he made this difficult decision to focus on advancing political reform, acknowledging the need to regain public confidence.

The Liberal Democratic Party (LDP), which Kishida leads, will hold a leadership contest in September to select a new president and, consequently, the next prime minister of Japan. Kishida's approval ratings fell sharply following his 2021 appointment, particularly after revelations about the LDP's connections to the controversial Unification Church and the emergence of unreported political donations. His popularity further declined due to stagnant wages failing to keep up with the increasing cost of living, even as Japan emerged from years of deflation.

Koichi Nakano, a political science professor at Sophia University, likened the situation to the grand champion yokozunas of sumo wrestling, where victory must be achieved with grace. The incoming LDP leader will need to restore public trust, address the rising cost of living, manage geopolitical tensions with China, and navigate potential implications of a possible return of Donald Trump as U.S. president.

During his tenure, Kishida diverged from traditional economic policies, focusing on boosting household incomes through wage increases and share ownership rather than relying on corporate profit-driven strategies. He also managed Japan's recovery from the COVID-19 pandemic with substantial stimulus spending and appointed Kazuo Ueda as head of the Bank of Japan to transition from his predecessor's aggressive monetary policies. The BOJ's unexpected interest rate hike in July, aimed at combating inflation, led to market instability and a stronger yen.

The potential for tighter fiscal and monetary conditions could follow Kishida's departure, impacting risk assets like equities, according to Shoki Omori of Mizuho Securities. Kishida's term was also marked by a significant shift in Japan's security policy, including the largest military buildup since World War II to counter China's regional ambitions. Additionally, he worked to improve strained relations with South Korea and enhance trilateral security cooperation with the U.S. to address North Korea's missile and nuclear threats.

Naoya Okamoto, a Tokyo office worker, expressed a personal wish for Kishida to continue as prime minister, noting the stress and challenges he faced. As Kishida prepares to step down, potential candidates to succeed him include former Defence Minister Shigeru Ishiba, who has already announced his candidacy, as well as Foreign Minister Yoko Kamikawa, Digital Minister Taro Kono, and former Environment Minister Shinjiro Koizumi.

Experts suggest that the LDP needs to select a new leader who is untainted by recent scandals and capable of presenting a renewed image to the public. Political analyst Atsuo Ito emphasized that if the party fails to address public criticisms and political funding issues, it risks a significant defeat in the next general election, which is due by the third quarter of 2025.