Japan’s next prime minister will face challenges from inflation, volatile financial markets, a worsening security environment and the transition to a new president in the U.S., Tokyo’s most important ally.

It’s set to be one of the most uncertain races in years, but one thing is clear for the long-dominant ruling party: The new leader isn’t likely to do things much differently than the old leader.

Prime Minister Fumio Kishida said Wednesday he decided not to run for a second term as president of the Liberal Democratic Party to take responsibility for scandals that have dogged the LDP throughout his nearly three-year term. Kishida has also taken a hit from recent market chaos, including the biggest falls in the main stock indexes in decades.

By choosing to bow out, Kishida is hoping a new face at the top can help the cabinet recover from approval ratings that have plunged to historic lows before the next national election, due by next year.

“This will be very much a personality and style election rather than one with deep policy differences,” said Tobias Harris, the founder of Japan Foresight LLC, a political risk advisory.

In announcing his decision, Kishida also took the chance to claim progress in ending Japan’s three-decade long deflationary malaise by seeking to revive “animal spirits” through higher wages and investment. Ties with the U.S. and other security partners have been strengthened under his watch, he said.

It’s a policy approach that has widespread support with the LDP, including among most of the anticipated candidates for the LDP leadership election. On the major issues, from support for gradual Bank of Japan policy normalization to increased defense spending, there’s little daylight between most of the expected leadership hopefuls.

The LDP has ruled Japan for all but a few years since its founding in the 1950s and is all but certain to retain power when national elections are held, which could come early in the term of a new leader to serve as mandate. The political finance scandal, where lawmakers were found to have concealed money generated at fundraising parties, soured public opinion but did not lead to any opposition group gaining enough support to topple the LDP.

A weakened right-wing of the LDP, which has been most closely tied to the scandals, means that proponents of the ultra-dovish economic policy approach of former Prime Minister Shinzo Abe now have much less influence.

LDP members and lawmakers will vote for a new leader in late September, and a priority will be to give the appearance that it has wiped the slate clean.

“Since the LDP’s support has fallen so low, the party will have to show that it’s been refreshed,” said Yu Uchiyama, professor of Japanese politics at the University of Tokyo.

That could advantage younger candidates who aren’t so closely associated with the funds scandal. Among them is Shinjiro Koizumi, the 43-year-old son of former Prime Minister Junichiro Koizumi. The party might also look to bring in Japan’s first woman prime minister, such as Yoko Kamikawa, the current foreign minister.

The whipsawing of the stock market and the yen has put a spotlight on economic policy, and tarnished Kishida’s image as a careful steward. But the prospect of any economic policy reset under a new leader looks remote, political analysts say.

One trigger for volatility in the markets was the BOJ decision on July 31 to raise interest rates. Ahead of the decision, LDP heavyweights — Toshimitsu Motegi and Taro Kono — called for the BOJ to move forward with policy rate hikes, and since the move another, Shigeru Ishiba, has backed the decision. All three men are considered potential leadership challengers. Ishiba and Kono stood unsuccessfully against Kishida in the last election.

One exception could be Economic Security Minister Sanae Takaichi, who called for a continuation of monetary easing when she ran against Kishida in 2021.

Security policy

Meanwhile, few of the expected LDP leadership candidates have offered any alternative to Kishida’s approach of trying to encourage companies to lift wages to boost spending and soften the pain of inflation.

On foreign policy, there has been consistent support in the LDP for a close alliance with the U.S. It’s all but certain the next prime minister will seek to form a close bond with whoever wins the U.S. presidential election in November.

Rahm Emanuel, the U.S. ambassador to Japan, said Kishida and President Joe Biden had laid strong foundations for the alliance to endure. “The future prime minister and president are going to work off the music sheet that Kishida and Biden created,” he said.

South Korean President Yoon Suk Yeol, who has pushed a hawkish foreign policy, worked to improve ties with Kishida and the two have brought the countries closer together for security. This unity between the two U.S. allies has helped Biden, who hosted the two for an unprecedented summit last year.

“Much of the trilateral cooperation was a result of personal chemistry among Biden, Kishida and Yoon. So who becomes the next premier is a key question,” said Kim Jung, a professor of political science at University of North Korean Studies in Seoul.

Previous LDP votes have in large part been influenced by the choices of party faction bosses, but the party’s decision to abolish most of its factions because of the slush-fund scandal may make the election one of the hardest to forecast in years.

“There’s clearly room for someone who doesn’t have popularity now but in a short campaign can catch fire and become more of a contender,” said Harris of Japan Foresight.

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(With assistance from Soo-Hyang Choi.)

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