Sanae Takaichi breaks Japan’s glass ceiling but faces 5 major challenges—Trump is just one

In a historic moment for Japanese politics, Sanae Takaichi has been elected by Parliament as the country’s first female prime minister. The election of the conservative firebrand—long seen as a political outsider—shattered a decades-old gender barrier in Japan’s male-dominated political system.

And the markets didn’t wait to react.

The Tokyo Stock Price Index (TOPIX) hit record highs, buoyed by investor hopes of policy certainty and economic revitalisation under Takaichi’s leadership.

But behind the market euphoria lies a far more nuanced reality. Takaichi inherits a country weighed down by economic stagnation, a deepening demographic crisis, political fragmentation, and the looming challenge of managing relations with an unpredictable ally—US President Donald Trump.

Her election is just the beginning; the real test lies in navigating five challenges at home and abroad. Chief among them is the rising cost of living.

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Inflation in Japan has surged well beyond the central bank’s 2% target, with consumer prices rising 3.6% year-on-year in March 2025—a level not seen in over a decade. Real wages, meanwhile, have failed to keep pace, eroding household purchasing power and fueling voter discontent.

Although the Bank of Japan recently raised interest rates to 0.5%, its highest level since 2008, policymakers remain caught between the need to tame inflation and the risk of stifling already weak growth.

Takaichi has proposed targeted tax cuts and energy subsidies, but critics argue that without deep structural reforms, the inflation problem will persist.

The second challenge is economic stagnation.

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Japan’s real GDP growth in 2024 was a meager 0.1%, according to the IMF, with projections for 2025 rising only slightly to 1.2%. The slowdown reflects a combination of weak domestic consumption, lingering supply chain disruptions, and renewed global trade tensions. President Trump’s threats of steep tariffs on Japanese automobiles and electronics—a cornerstone of Japan’s exports—have rattled business confidence and shown how vulnerable the country is to outside shocks.

Reviving growth will require bold steps, including deregulation, corporate tax reform, and increased investment in digital infrastructure—all part of Takaichi’s economic platform, but far from guaranteed given her government’s tenuous hold on power.

No less daunting is the demographic time bomb.

Japan’s population declined by nearly 900,000 in 2024—the sharpest annual drop on record—falling to around 120.3 million. The workforce is shrinking rapidly, with the working-age population (15–64) down from 87.3 million in 1995 to just 73.7 million today.

At the same time, the number of people aged 65 and older has soared past 36 million, creating a lopsided social support system that places enormous strain on public finances.

Takaichi has signalled support for pro-natalist policies, such as expanding childcare and parental leave, but remains hesitant to embrace large-scale immigration, a politically sensitive issue among her conservative base.

Takaichi also faces serious political headwinds.

Her Liberal Democratic Party (LDP) was forced into a minority position after its long-time coalition partner, the centrist Komeito party, walked away over a party slush fund scandal and disagreements with Takaichi’s hardline views on constitutional reform and defence.

To secure the premiership, she brokered a fragile alliance with the Japan Innovation Party (JIP), a smaller reformist bloc. While the partnership has provided a temporary path to power, it remains unstable, with ideological rifts and legislative gridlock looming as persistent threats to governance. Political analysts warn that Takaichi will need to show deft coalition-building skills to avoid early elections or policy paralysis.

On the global stage, few relationships are more critical—or more complicated—than Japan’s with the United States. President Trump, now in his second non-consecutive term, has praised Takaichi’s rise as “tremendous news for the incredible people of Japan.” Yet his administration has simultaneously revived tariff threats, particularly targeting Japanese automobiles—a sector that accounts for a significant share of Japan’s exports to the US.

The upcoming Tokyo summit between the two leaders will be a pivotal test of Takaichi’s diplomatic acumen. She must strike a delicate balance: maintaining Japan’s security alliance with Washington while shielding key industries from Trump’s aggressive trade stance.