In Japan’s Upper House election on June 20, the governing coalition, won only 47 seats, short of the 50 it needed to ensure a continuing majority in the 248-seat upper chamber. This comes on top of the government losing control of the more powerful Lower House last October.
The election result reflects a convergence of economic frustration, political fatigue, and structural discontent among voters. Although Japan’s economy is stable, many citizens—particularly younger and rural voters—feel left behind by policies perceived to favour urban centers and older generations. Stagnant real wages and persistently high prices have contributed to a sense of unfairness, fuelling public dissatisfaction.
Political trust has also been eroded by recent funding scandals within the ruling Liberal Democratic Party (LDP). Prime Minister Ishiba, initially seen as a reform-minded outsider, has struggled to deliver on promises of change, leaving many supporters disillusioned. These domestic dynamics are playing out against a broader global trend: since the pandemic, many developed democracies have seen voters grow weary of established elites. The LDP’s near-continuous hold on power since 1955 has become a liability in this climate, and the election served as a channel for public frustration and a call for political course correction.
“Japan is not immune from the global anti-incumbent wave we’ve seen since the pandemic. Voters in many developed democracies are signalling fatigue with established elites and so-called experts”. - Seiji Inada, Managing Director and Global Public Affairs expert, FGS Global
The loss of a majority in the Upper House, combined with last year’s setback in the Lower House, means the LDP can no longer govern unilaterally. While the Upper House wields less power than the Lower House, its approval is required for all major legislative initiatives, including budgets and key policies on energy and defense. The government will now need to negotiate with opposition parties and independents, likely on a case-by-case basis.
As a result, the policy environment is expected to shift. To advance key initiatives, the ruling coalition may need to adopt populist measures advocated by swing parties, such as household tax relief or expanded tax credits. This marks a departure from the LDP’s traditionally top-down approach, ushering in a more transactional style of governance. While this could encourage more substantive policy debate, it is likely to slow decision-making and add complexity to the legislative process, creating a less predictable environment for businesses and investors.
“We may see expanded tax credits or other concessionary measures emerge as the price of cooperation” - Seiji Inada
Internationally, Japan’s partners are watching developments closely. The country has benefited from stable leadership under previous prime ministers Abe and Kishida, but that stability is now in question. Defense policy is one area where uncertainty looms. Prime Minister Ishiba has advocated for expanding defense capabilities and increasing spending to 2% of GDP, but with diminished political capital, these plans may face delays or require compromise as opposition and coalition partners demand greater focus on domestic priorities.
“Opposition and coalition partners may demand more spending on domestic priorities instead” - Seiji Inada
The U.S.-Japan alliance remains a cornerstone of Japanese foreign policy, but Washington may seek reassurance that Tokyo’s commitments—such as host-nation support for U.S. troops and regional diplomacy—will remain intact. While a more nationalist-leaning LDP could intensify rhetoric toward China, major strategic moves are likely to be postponed until political leadership is re-established. In the near term, Japan’s government is expected to focus inward, narrowing its international bandwidth while managing domestic fallout.
“For now, Japan’s international bandwidth is likely to narrow. A government focused on managing internal fallout will struggle to maintain a proactive global agenda” - Seiji Inada
Attention now turns to Prime Minister Ishiba’s leadership. Major electoral losses in Japan often trigger resignations, and pressure is already mounting within the LDP. Should Ishiba step down, as he has indicated on July 23rd a party leadership race and the possibility of a new prime minister could follow.
Coalition realignment is also on the horizon. No opposition party has a clear majority, making negotiations fluid. The LDP may seek to partner with swing parties such as the Democratic Party for the People (DPFP) or the Japan Innovation Party (Ishin) to re-establish a working majority, either through formal coalition agreements or issue-based cooperation. However, if talks stall, opposition forces may attempt to form a government, though political fragmentation poses significant challenges.
Japan now faces a more fluid and unpredictable political landscape than it has seen in years. Policy direction will depend on how these dynamics evolve in the coming weeks. What is clear is that voters have delivered a strong mandate for change—demanding greater economic fairness, transparency, and responsiveness from the political system.
For business leaders, this is a critical moment to sharpen public policy engagement strategies. Understanding how Japan’s fragmented policymaking environment will affect regulations, spending priorities, and international positioning will be essential. Those who engage early and constructively will be better positioned to shape outcomes rather than simply react to them.
