Takaichi Sanae is the prime minister, Japan's first female leader. She was selected as LDP leader on October 4th 2025, succeeding Ishiba Shigeru, who resigned after less than a year. She leads a minority government—the first in the LDP's history—after the LDP and its coalition partner Komeito failed to secure a majority in the Lower House at elections in October 2024. At the upper-house election on July 20th 2025, the LDP and Komeito lost their majority for the first time since 2013. Ishiba said he would stay on, but his resignation seems inevitable; a poll by Kyodo shows his cabinet's approval rating has slumped to 23%. Turnout increased to 59%, the highest since 2012.
On July 23rd Japan and America announced that tariffs on Japanese cars and most other goods would be lowered to 15%, in exchange for big Japanese investments in America and more purchases of American rice. Ishiba called it a "major achievement", though it still leaves Japan facing higher tariffs than before Trump came to power—and by completing the deal, Ishiba made himself look more expendable.
Inflation is running at 3.6% a year and real wages have fallen for five straight months. The ¥20,000 ($136) one-off handout Ishiba proposed was too meagre to win over voters and irked many existing supporters, who saw it as shallow and reactive.
Immigration dominated the final days of electioneering. The number of foreign workers reached a record 2.3m in 2024—still only about 3% of the workforce (compared with around 20% in Britain and Germany) but three times higher than a decade ago.
On September 7th 2025 Ishiba resigned as LDP president, saying that if the party "is perceived as unchanging, there will be no tomorrow." He will remain in office until a replacement is elected on October 4th. The LDP released a withering report on its performance in the July polls; party elders and even some cabinet members called for a fresh leadership vote. Ishiba pre-empted this by choosing to resign.
The contest to succeed Ishiba was a fork in the road. Some believed the party should lean hard to the right to win back supporters deserting it for small nationalist groups that stir up anger towards Japan's growing population of foreign workers. Others wanted reform led from the centre. Takaichi Sanae, a former internal-affairs minister and standard-bearer for the right wing who had narrowly lost to Ishiba in 2024, won the leadership on October 4th 2025 in a run-off against Koizumi Shinjiro, the charismatic son of a former prime minister. Takaichi's support from the party's more than 1m dues-paying members, as well as key party elders, carried her to victory. Her rise signals an end to the staidness long characteristic of Japanese politics: she offers a blend of muscular patriotism and culture-warrior traditionalism.
On September 4th Trump signed an executive order enacting the trade deal, reducing tariffs on all Japanese imports to 15%. But a huge and hazily defined $550bn fund for making investments into America remains unclear—the White House claims that Japan will finance it and America will decide how it is spent. In early September yields on long-term Japanese government bonds hit their highest levels in decades.
The LDP was founded in 1955 from the merger of the Liberal Party and the Japan Democratic Party. It lost power briefly in 1993 to a multi-party coalition and again in 2009 to the Democratic Party of Japan (DPJ), but the DPJ struggled to govern and happened to be in office during the 2011 earthquake, tsunami and nuclear disaster. The assassination of Abe Shinzo in 2022—which exposed extensive ties between the Unification Church and the LDP, forcing seven cabinet ministers to resign—and a subsequent scandal over political fundraising led to the dissolution of many of the party's formal factions—which had functioned as parties within the party—leaving the LDP more fractious. The party's support has fallen from above 40% in 2022 to below 30%, though no rival cracks 10%.
On October 10th 2025 Komeito, the LDP's pacifist coalition partner since 1999, told the LDP it had had enough. Komeito was founded in 1964 to represent Soka Gakkai, a lay Buddhist movement with millions of members. Over time it shifted from the far left to the centre, checking the LDP's more hawkish impulses and serving as a key backchannel to China. The relationship had frayed: the LDP's fundraising scandals angered Soka Gakkai's 8m member-households; Ikeda Daisaku, the movement's longtime spiritual leader who favoured the coalition, died in 2023; and in upper-house elections in 2025 Komeito won just 9% of the vote, down from 13% in 2019.
Takaichi Sanae precipitated the break. She courted Tamaki Yuichiro of the Democratic Party for the People behind Komeito's back, packed her leadership team with party elders on bad terms with Komeito, and elevated a lawmaker at the heart of fundraising scandals even when Komeito demanded substantial reforms to campaign finance. Komeito also recoils at her revisionist views on wartime history. Saito Tetsuo, Komeito's leader, opted for rupture.
Without Komeito, the LDP has 196 of 465 lower-house seats. The three largest opposition parties—the Constitutional Democratic Party (CDP, 148 seats), the Japan Innovation Party (Ishin, 35) and the DPP (27)—could band together to outvote the LDP. Noda Yoshihiko, the leader of the centre-left CDP, called it "a once-in-a-decade chance for a change of government" and signalled a willingness to back Tamaki as prime minister. A meeting of the three parties' leaders on October 15th ended without agreement. The LDP is a more natural partner for centre-right Ishin; Takaichi's meeting with Ishin's leaders the same day went more smoothly. Without Komeito, the LDP's centre of gravity will shift rightward—faster on security-policy reforms, but slower on social policy.
Memories of Japan's imperial past remain a flashpoint in domestic politics. In 1995 Murayama Tomiichi, a socialist leading a short-lived coalition with the LDP, issued a "heartfelt apology" to the victims of Japan's "colonial rule and aggression" in Asia. Ahead of the 70th anniversary in 2015, Abe Shinzo defied his own right-wing supporters and again mentioned Japan's "aggression", while seeking to make his apology the last.
Ishiba Shigeru, after being pushed out as LDP leader in favour of Takaichi, issued his own personal reflections on the 80th anniversary of the war's end. He focused on why Japan's leaders were unable to avoid war: the lack of clear civilian control over the armed forces; a limp and divided government; and a media that fuelled nationalism—amounting to a trenchant warning about the risk of succumbing to illiberal nationalism today, and a rebuke of his party's choice of successor.
Takaichi has diametrically opposite views: she urged Abe not to use the term "aggression" and argues contemporary politicians have no right to condemn the wartime leadership. "If Japan had won the war," she has said, "those who started the war would be heroes." When historical revisionism in Japan rises, relations with South Korea and China tend to suffer.
On January 19th 2026 Takaichi Sanae called a snap election for February 8th—the shortest campaign in post-war history—gambling on her high approval ratings (above 70% in many polls) to win the LDP an outright majority. In response, the Constitutional Democratic Party joined forces with Komeito to create the Centrist Reform Alliance.
The gamble paid off with the biggest election victory in Japan's post-war history. The LDP won 316 of 465 lower-house seats—a commanding two-thirds supermajority—winning big across every region and age group. The party could have had 14 more seats but ran out of names on its party lists. The Centrist Reform Alliance collapsed from 172 seats to 49; its co-leader resigned. Sanseito won 15 seats and Team Mirai 11. The supermajority allows the LDP to override the upper house, giving Ms Takaichi near-total legislative control. She may now attempt the long-standing conservative goal of revising Japan's constitution, which prohibits possessing "war potential"—though she would still need two-thirds of the upper house and a majority in a referendum.
Several newer parties now threaten the LDP. Of ten main parties contesting the February 2026 election, only three existed before 2012. The Democratic Party for the People (DPFP), led by Tamaki Yuichiro, combines technocratic centrism with populist flair, quadrupled its seats in the Lower House in October 2024 to 28, and more than doubled its upper-house seats from nine to 22 at the July 2025 election, making it the second-largest opposition party in the upper house after the CDP. The Do-it-Yourself Party (Sanseito), a far-right, anti-immigrant party which uses the slogan "Japanese First" and hails the isolationist shogun Tokugawa Ieyasu, jumped from two seats to 15 in the upper house and has thrust immigration into central debate. Team Mirai, led by Anno Takahiro, is a techno-optimist party focused on AI, robotics and self-driving vehicles. The Japan Innovation Party (Ishin) has built up a strong base around Osaka and is the biggest of the new parties with 34 of 465 lower-house seats; it has become the LDP's coalition partner. Reiwa Shinsengumi, a six-year-old left-wing populist party, promises to abolish the consumption tax. All share angst about Japan's shrinking population but offer starkly different solutions. Though small, they wield disproportionate influence via social media.
Social media's influence on Japanese politics is accelerating. Nearly 75% of Japanese over 70 say they trust NHK, the national broadcaster, but fewer than 40% of 20-somethings do. The DPFP boasts nearly twice as many YouTube subscribers as the ruling party.
Japan is a trade-oriented economy that exports heavily to America. Toyota, the world's largest carmaker by sales, reported that American tariffs cost it ¥450bn ($3bn) in the three months to June 2025, the biggest hit of any carmaker. Cox Automotive, a consultancy, reckons carmakers both foreign and domestic incurred more than $25bn in tariff obligations on vehicles imported into America in the first half of 2025, equivalent to a little over $5,000 per vehicle. Donald Trump imposed sectoral tariffs of 25% on steel, aluminium and automobiles, and announced "reciprocal" tariffs of 24% on all Japanese goods (suspended for 90 days). Ishiba described the tariffs as a "national crisis".
In April 2025 the IMF cut Japan's growth forecast by 0.5 percentage points. The Nomura Research Institute predicts a 0.8 percentage-point reduction in GDP if all of Trump's tariffs remain in place.
Interest costs already account for 10% of central-government spending and are on track to double by 2030, according to the IMF. The central bank is paying out 0.4% of GDP in interest on the mountains of cash it created during years of monetary stimulus—costs that eventually land on taxpayers. Inflation is running at 3.6% a year and real wages are 4% lower than in 2019. Only 12% of the country's debt is held by foreigners. About half of Japanese households' financial wealth is in bank deposits, compared with about a third in the EU and only 10% in America—making them particularly exposed to falls in the purchasing power of the yen. At the end of 2023, cash and bank deposits totalled 1,128trn yen ($7.6trn), more than half of household assets.
The Bank of Japan, led by governor Ueda Kazuo, has been raising rates gingerly despite headline consumer prices exceeding the BoJ's 2% target for almost four years. It raised rates from -0.1% to 0.75% over the past two years. Central-bank researchers peg Japan's neutral rate in the range of 1-2.5%. The BoJ scrapped its policy of "yield-curve control" in March 2024, under which it had bought unlimited quantities of bonds to pin the ten-year yield below 1%. It still buys ¥2.9trn ($19bn) of JGBs a month, though net buying (after accounting for bond redemptions) has been negative since 2024. Academics estimate that the BoJ's bond-buying depressed ten-year yields by between one and three percentage points in the 2010s, hugely subsidising the public sector's funding costs.
The JGB market is increasingly reliant on foreign buyers, who accounted for 53% of ultimate demand for long-dated government bonds (maturities over ten years) in 2025, up from 22% before the pandemic—largely because traditional domestic buyers, such as insurers and the BoJ itself, have stepped back. The BoJ is also shrinking its balance-sheet, reducing its role as a reliable buyer of long-dated bonds. In May 2025, 40-year bond yields reached a record 3.7%, up from 2.6% at the start of the year, before the finance ministry steadied the market by signalling it would sell fewer long-dated bonds. On January 20th 2026 the 30-year yield hit 3.8%, the highest in its quarter-century history. Ten-year yields have risen from 0.7% at the time yield-curve control was scrapped to 2.3%, putting them within striking distance of Germany's 2.8%. But in real (inflation-adjusted) terms Japan's ten-year yield is just 0.2%, compared with 1% in Germany and nearly 2% in America—the gap with America has been roughly two percentage points for four years.
The yen fell by 9% against the dollar in the six months to late November 2025 and had never been weaker against the euro in the single currency's 27 years. On a trade-weighted, inflation-adjusted basis the yen is among the world's weakest currencies. According to the Big Mac index it is roughly 50% undervalued; Goldman Sachs estimates long-run fair value at about ¥90 per dollar, compared with ¥153 now. Robin Brooks of the Brookings Institution argues that the yen's persistent weakness reflects a slow-motion fiscal crisis. Scott Bessent, America's treasury secretary, has blamed ructions in Japanese markets for a rise in America's borrowing costs; rumours have swirled of Japan and America considering a joint intervention to prop up the yen. The IMF expects Japan's deficit to rise to around 4.4% of GDP by 2030, driven by defence spending, an ageing population and rising bond yields. The country holds $1.3trn in foreign-exchange reserves, which the finance ministry could deploy to defend the yen.
Japan's net public debt to GDP of 130% is among the world's highest, but net debt has shrunk every year since 2020 thanks to inflation boosting tax receipts. The primary budget deficit (excluding interest payments) was a manageable 0.9% of GDP last year, down from 2.4% in 2019. An estimate by Yili Chien of the Federal Reserve Bank of St Louis, Wenxin Du of Harvard and Hanno Lustig of Stanford puts the net liabilities of the consolidated public sector at just 78% of GDP in 2024, because the public sector owns a gargantuan pile of assets, from land to foreign corporate bonds. Japan's public-sector investments abroad make it look a lot like a hedge fund: cheap debt funding high returns. Those returns have averaged 6% of GDP a year over the past decade, helped by low interest rates, a weakening yen and strong asset-price growth. But changing conditions could reverse these flows: the sizeable duration and currency mismatch on the public balance-sheet exposes Japan to mark-to-market losses that could trigger a fiscal crisis.
Japan is a global investment colossus. Its financial institutions hold $6trn in foreign securities, a figure which has doubled in the past 20 years as rock-bottom interest rates and a weak yen depressed domestic returns. Half of this is tied up in American assets and another fifth in the Cayman Islands, chiefly as a conduit for more American investments.
When Japanese and American rates were both near zero, hedging-minded investors such as life insurers ate up foreign assets. As American short-term rates jumped after the pandemic, currency swaps became prohibitively expensive and those investors lost their appetite. Between 2021 and 2024 Japan's life insurers went from protecting 60% of their foreign bond holdings to just 40%. More important, investors that typically eschew hedging—pension funds and investment trusts—have been increasing their foreign exposure. The $1.8trn Government Pension Investment Fund (GPIF) now holds half its assets in non-Japanese bonds and shares, up from 22% in 2012. Investment trusts, which have grown popular with households since a law in 2014 gave them favourable tax treatment, hold $1.3trn in foreign securities, mostly American stocks. The flipside of being unhedged is greater sensitivity to rising domestic interest rates and to a stronger yen: if hedgeless investors dump foreign assets and pile into domestic ones, the yen would appreciate, making repatriation more attractive and accelerating the sell-off in foreign securities.
Japan plans to lift defence spending from 1.4% of GDP to 2% by 2028. After taking office in October 2025, Takaichi Sanae promised to reach the 2% target by early 2026—two years faster than originally planned. Elbridge Colby, an American official, has called for "at least" 3%.
Akazawa Ryosei is the minister leading tariff negotiations with America; he visited the White House on April 16th 2025. Japan has proposed a gradual reduction in auto tariffs tied to direct investment in America's car industry, but has ruled out accepting tariffs of 25% on cars or making concessions that might anger farmers ahead of the upper-house election.
After Japan's asset-price bubble burst in the early 1990s, years of deflation and stagnation left savers wary of risk. In January 2024 the government overhauled its NISA scheme, a tax-free investing option modelled on Britain's ISAs. The scheme proved far more successful than ministers expected: investors opened 5m new accounts, and assets reached 59trn yen, hitting the government's target three years ahead of schedule. Kishida Fumio, a former prime minister, called the shift a "turning point" and a test of whether Japan could leave behind its deflationary past.
Japan's core inflation has reached 3.7%, the highest in the G7, eroding idle cash at a time of relatively low interest rates. The fast-ageing population has also raised concerns about the pension system's durability. Bookshops now dedicate entire sections to financial guides; trains are plastered with investing-seminar advertisements; financial influencers command enormous online audiences.
Tokyo's stock exchange has accelerated corporate-governance reforms. In 2023 it instructed listed companies to "implement management that is conscious of cost of capital and stock price". Many responded by buying back shares, raising dividends and shedding unprofitable activities; dividend payouts and share buy-backs have both reached record highs. Cross-shareholdings—used to cement corporate alliances and insulate management, often at the expense of minority shareholders—have fallen from more than 50% of publicly listed shares in the early 1990s to just 12%.
The corporate-governance revolution traces to the introduction of a new governance code in 2015, championed by Abe Shinzo. In the ten years before the code, Japanese companies delivered a total shareholder return, including dividends, of roughly zero; in the decade since, returns have reached around 170%, comfortably outperforming European peers. By 2025 listed firms generated a return on equity of 8.6%, up from an average of 6.3% between 2010 and 2015. In the past five years they have paid out dividends and buy-backs equivalent to 33% of operating cashflow. Since 2023 foreigners have bought ¥8.7trn ($55bn) more of Tokyo-listed shares than they have sold. Takaichi Sanae, however, has signalled scepticism, saying there has been "too much focus on shareholders" and promising changes to the governance code to steer money towards employees.
Those aged 60 and over hold nearly 60% of Japan's household assets. The government is considering a "Platinum NISA" for those over 65, which would allow tax-free investment in monthly dividend funds currently excluded from NISAs. Critics complain that much of the money invested through NISAs goes abroad: around half of total investments flow into foreign stocks, and as many as 80-90% of mutual-fund investments. The default purchase for beginners is either America's S&P 500 index or the "Orukan" (shorthand for "All Country"), a tracker of global stocks.
Japan has become the world's hottest private-equity market. The number of PE deals has doubled since 2019 and their value has tripled. Mergers and acquisitions reached a record $232bn in the first half of 2025. Western firms including Ares, Carlyle, Apollo and KKR are opening or expanding offices in Tokyo. KKR backed the 2023 listing of Kokusai Electric, a maker of chip tools.
Japanese firms are cheap: the median listed company's enterprise value is seven times its operating profit, compared with 11 times in America. They also tend to squander shareholders' capital. The median listed firm holds cash worth 21% of its total assets, compared with 8% for American public companies, making simple rationalisations lucrative.
Japan's PE market has also benefited from the global retreat from China. As the risk of doing deals in the People's Republic has grown, global PE funds have shifted Asia allocations towards Japan and India.
The five biggest stocks in the Nikkei 225—four of which have some link to AI—account for 36% of the index's price-weighted total valuation, up from 24% in 2019. Advantest, a maker of semiconductor-testing equipment, has been one of the fastest-growing firms in the index, its share price rising by almost 800% since the release of ChatGPT in late 2022.
In the 1980s Japanese firms accounted for more than half of the global semiconductor market. By 2019 Japan accounted for less than 10%. Trade friction with America led to limits on Japanese chip exports, creating an opportunity for rivals in Taiwan and South Korea. Japanese firms retained strong positions in materials and equipment—from coating chemicals to silicon wafers—but fell behind in cutting-edge manufacturing.
Japan produces 56% of global silicon wafers.
In the boldest industrial-policy push in a generation, the government ploughed Y3.9trn ($27bn) into support for semiconductors between early 2020 and early 2024. As a share of GDP, that amounts to a bigger commitment than America made through the CHIPS Act. The LDP passed a series of new laws enabling broader and longer-lasting government support for chip firms. Japan's latest National Security Strategy, released in 2022, explicitly sets a goal of strengthening "next-generation semiconductor development and manufacturing bases".
Japan's semiconductor strategy has two pillars. The first is indispensability: controlling parts of a long supply chain to leverage interdependence and keep others (ie, China) from weaponising their control over certain inputs. The second is autonomy: having domestic production capacity. Amari Akira, a former lawmaker who led semiconductor policy, says: "The world will be divided into two groups: countries that can supply semiconductors and countries that buy them. The countries that supply will be the winners."
TSMC set up shop in Kyushu, which has positioned itself as "Silicon Island". Its first fab there, run through JASM, a joint venture with Sony and Denso, began producing logic semiconductors for cars and electronics in December 2024. It produces chips of 12-28nm—the most advanced type to be produced in Japan so far, but well behind TSMC's state-of-the-art. A second facility for higher-end logic chips will break ground in 2025 and should be running in 2027; talks about a potential third fab are reportedly under way. TSMC's arrival has enticed over 60 companies to establish a presence in Kumamoto. Wages have been pushed up by TSMC's relatively high pay—factory canteen positions offered Y3,000 ($20) an hour, roughly triple the prefecture's average wage. Kyushu Financial Group estimates the economic impact in Kumamoto will reach Y11trn ($76bn) over the next decade. Kumamoto's governor, Kimura Takashi, is planning a science park to connect universities, suppliers and startups.
Micron, an American memory chipmaker, has received more than $1bn in subsidies to expand its chipmaking facilities in Hiroshima. Samsung is building a cutting-edge research facility in Yokohama.
Rapidus, founded in 2022, opened a massive fab in Chitose on Hokkaido. In mid-July 2025 it announced the successful pilot production of two-nanometre transistors. It has received Y1.72trn ($12bn) in government support and investment from a consortium including Sony, Toyota and SoftBank.
Japan's military build-up is a response to increasingly aggressive neighbours in China and North Korea and to an ever more unreliable ally in America. The process began in earnest after China's confrontation with Japan over the Senkaku islands, which Japan controls and China claims (calling them the Diaoyu islands). In November 2025 Chinese coast-guard and navy manoeuvres in the Yellow Sea and near the Senkaku/Diaoyu islands drew attention, though they were hard to distinguish from routine exercises. George Glass, America's ambassador in Japan, wrote on X: "The United States is fully committed to the defence of Japan, which includes the Senkaku Islands." A long-standing norm against defence spending exceeding 1% of GDP was broken; Japan announced in December 2022 it would raise spending to 2% of GDP by early 2028. Some of the accounting is a sleight of hand, counting existing spending such as the coast guard towards the defence total. Takaichi Sanae plans to use a supplemental budget to get over the 2% threshold by spring 2026. Kobayashi Takayuki, the LDP's policy chief, says "2% of GDP is nowhere near enough."
Japan is acquiring hundreds of American Tomahawk cruise missiles, capable of striking deep into mainland China and North Korea—breaking a long-standing taboo against the ability to strike targets on enemy territory. In late 2025 the destroyer JS Chokai arrived in California to be equipped with the first of these. Japan will also deploy home-grown long-range missiles on Kyushu, the southernmost of the country's four main islands. In August 2025 Japan fielded its first F-35B, a short take-off version of a top American fighter jet.
The Self-Defence Forces (SDF) have a target of 247,000 troops but fell short by over 10% in 2025; among the lowest ranks the shortfall is nearly 40%. Unmanned systems can help but will not be enough. The SDF hopes better living conditions and fast satellite internet on ships will attract young recruits.
Ms Takaichi wants to create a stand-alone national intelligence agency, taking over from intelligence-gathering dispersed among several government ministries. On November 14th 2025 a new LDP council met to discuss its design. Earlier in 2025, the Diet passed a law authorising the government to take active measures to neutralise cyber threats, clarifying how to apply Japan's constitutional prohibition on the pre-emptive use of force in cyberspace.
Kishida Fumio's administration partially revised longstanding restrictions on arms exports. Japan is jointly developing a next-generation fighter jet with Britain and Italy; Mitsubishi Heavy Industries struck a $6.5bn deal to supply Australia with Mogami-class frigates. Both projects required clunky legal workarounds. On April 21st 2026 Ms Takaichi announced a historic loosening of export rules, scrapping restrictions that had limited sales to five non-lethal categories (rescue, transport, surveillance, warning and mine-sweeping). Lethal arms may now be sold to countries that have defence-technology agreements with Japan—17 at present, including America, Australia, India and several South-East Asian states. Exports to countries involved in conflict remain barred, though the government may allow exceptions deemed necessary for Japan's own security. An audit published in January 2026 found 118 orders of American military equipment worth some $7bn remained unfilled five or more years after contracts were signed; the Iran war has caused delays in promised Tomahawk-missile deliveries to Japan. Japan deployed its first long-range "counter-strike" missiles in March 2026.
Japan's positions on nuclear security may be the next taboos to fall. Following South Korea's agreement with America to acquire nuclear-powered submarines, Japanese officials have expressed interest in such subs too. In November 2025 Ms Takaichi hinted that the three non-nuclear principles—a pledge made in 1967 by the then prime minister, Sato Eisaku, that Japan would not possess, produce or host nuclear weapons—might be up for review.
On November 7th 2025 Takaichi Sanae told the Diet that the use of force against Taiwan could prompt Japan to exercise "collective self-defence". China was furious: Beijing warned of "crushing defeat" and its consul-general in Osaka made threats on X. China retaliated by advising its citizens to avoid travel to Japan—about a fifth of foreign tourists in Japan are Chinese—and appeared to stop imports of Japanese seafood again. In 2010 China had suspended sales of rare earths to Japan for several weeks after Japan arrested a Chinese fishing-boat captain; in its more recent trade war with America, China re-used that weapon. Ms Takaichi refused to retract her words.
Xi Jinping did not send Ms Takaichi a congratulatory message when she took office, breaking with diplomatic precedent. On February 24th 2026 China announced curbs on rare-earth exports to at least 20 Japanese firms, mostly in the defence industry, with another 20 put on a watch list. China accounted for 20% of Japan's total trade and 20% of its foreign tourists; flight traffic during the lunar new-year holiday in February 2026 fell by half. At the Munich Security Conference, China's foreign minister, Wang Yi, warned that Japan was haunted by the "ghosts of militarism". Chinese coastguard vessels patrolled near the Senkaku islands for a record 356 days in 2025. In response, Japan announced plans to deploy missiles on Yonaguni, its island closest to Taiwan, for the first time. In late February 2026 the LDP finalised a proposal to lift a longstanding ban on the export of lethal weapons.
In December 2025 Chinese fighter jets locked their radars onto Japanese aircraft; in April 2026 a Japanese destroyer transited the Taiwan Strait for the first time since Ms Takaichi became prime minister, coinciding with the anniversary of the Treaty of Shimonoseki, which ended the Sino-Japanese war in 1895 and handed Taiwan from China to Japan. Two Chinese naval vessels then passed unusually close to Japan's mainland, and China began building a new structure in the East China Sea. Japan deployed long-range missiles to a base in Kyushu, putting the Chinese mainland in range. Chinese visitors to Japan fell by more than half in the first quarter of 2026 compared with a year earlier. In March 2026 a knife-wielding SDF officer broke into the Chinese embassy in Tokyo; on May 19th 2026 a Chinese man stabbed three people, two of them Japanese, at a restaurant in Shanghai. On May 19th 2026 Ms Takaichi met South Korea's president Lee Jae Myung in Seoul to discuss America's shifting stance on China.
Younger Japanese politicians see little upside in cultivating ties with Chinese counterparts: more than 80% of Japanese voters have negative views of China. The Liberal Democratic Party once relied on high-ranking lawmakers such as Nikai Toshihiro to serve as Beijing-trusted intermediaries; Mr Nikai led a 3,000-executive delegation to Beijing in 2015 and hand-delivered a letter to Mr Xi to begin Abe Shinzo's rapprochement. He and many of his peers have since retired, and in 2026 a delegation of Japanese executives got the cold shoulder from Chinese officials and cancelled its annual trip for the first time in more than 13 years.
In March 2026 an American Marine expeditionary unit based in Japan began sailing towards the Gulf at high speed—the first time it left the Pacific since 2004, during the Iraq war—leaving Asia without an American crisis-response force. Donald Trump demanded Japan send ships to help open the Strait of Hormuz. Japan has minesweepers that could assist, but polling suggested 80% of Japanese opposed the conflict. Laws passed in 2015 by Abe Shinzo allow "collective self-defence" beyond Japan's borders; minesweeping in the strait was among the scenarios debated in parliament at the time. But when pressed on whether Japan would aid America after a pre-emptive strike, Abe had dismissed the possibility: "Japan would not support such a country."
Masato Sagawa, a Japanese scientist, helped commercialise rare-earth magnets in the 1980s. Japan depended on China for around 90% of its rare earths at the time of the 2010 Senkaku crisis, when China imposed an unofficial export ban. Japan passed a ¥100bn ($1.2bn) supplemental budget and developed a strategy of finding alternative sources, reducing rare-earth use and building stockpiles. A decade later dependence had fallen to around 60%, but demand has since outpaced new supply and dependence has ticked back up to around 70%. On February 24th 2026 China announced curbs on rare-earth exports to at least 20 Japanese firms, mostly in defence; the head of Japan's trading-house association called it "a challenge to the global supply chain as a whole". Long-term supply disruptions would ripple across Japanese industry. See rare-earth minerals.
Japan grows 99% of the rice it consumes. The Ministry of Agriculture ordinarily stores around 910,000 tonnes, equivalent to one or two months of demand. Rice prices rose by more than 100% from the start of 2024 to mid-2025, driven partly by a poor harvest in 2023. The government sold so much reserve rice that the terms kokomai (old, old rice) and kokokomai (old, old, old rice) entered popular use for the two- and three-year-old vintages now sold in stores. From June 23rd 2025, reselling rice above its original retail price carries a prison sentence of one year or a fine of up to ¥1m ($6,900).
Japan's monarchy is the world's oldest. By law only men can inherit the throne, and only through the male line; princesses lose their royal status when they marry. Prince Hisahito, the 19-year-old nephew of Emperor Naruhito, is the only possible heir in his generation—the sole young male royal born in recent decades. In September 2025 he underwent the coming-of-age ceremony, the first for a male royal in 40 years. Polls suggest most Japanese favour allowing female emperors, but conservatives argue the male line has remained intact for some 2,700 years. Takaichi Sanae is among those strongly opposed to reform.
In 2005 a government committee recommended allowing women to be emperors, but the recommendation was shelved after Hisahito was born. In the late 1940s, during America's occupation, several branches of the imperial family were stripped of their royal status; some conservatives propose restoring them to find more male heirs, though these clans have lived as commoners for several generations.
Emperor Akihito became in 2019 the first monarch in modern Japanese history to abdicate. His wife, Empress Michiko, was the first commoner to marry into the royal family; she broke courtly norms by choosing to breastfeed and raise her children herself.
Japan is rare in requiring married people by law to share the same surname. In 95% of cases the woman takes her husband's name. Keidanren, Japan's largest business lobby, says the status quo "hinders women's advancement". Opposition parties put forward bills in May 2025 to change the system, but scepticism from the ruling Liberal Democratic Party ensured no new legislation emerged. Surveys suggest a majority of Japanese favour relaxing the rule. Nippon Kaigi, an ultraconservative group with ties to the LDP, has fought to block the change. The issue has become totemic for a chunk of the Japanese political right. Campaigners argue that reform could help raise the birth rate: a study by Asuniwa, an NGO, concluded that letting people keep their names might prompt some 590,000 cohabiting couples to switch to legal marriages.
The 2025 World Expo is being held in Osaka, Japan's second city. Its construction cost doubled from the initial estimate to ¥235bn ($1.5bn). The site is slated also for Japan's first casino, set to open by 2030. In its first months the expo drew more than 10m visitors and officials hope for 28m by the time its six-month run ends in October. The idea of pitching Osaka as the venue was floated by the Japan Innovation Party, a populist party rooted in the region.
The 1970 Osaka expo drew some 64m visitors—roughly half of Japan's population at the time. They saw wonders including a moon rock, levitating trains and the first IMAX film.
Only 17% of the Japanese population has a passport.
Japan hosted 337,000 foreign students in 2024, up 21% from 2023; more than 90% came from Asia. The government wants 400,000 by 2033. Universities are offering more English-language courses, more generous scholarships, and making it easier for students to work after graduating. Low birth rates make the country especially enthusiastic: some Japanese universities may need to close without more students from abroad, according to Hiroshi Ota of Hitotsubashi University. Members of Sanseito, a far-right party, have decried growing student arrivals from China; some 115,000 came in 2023, up from under 100,000 in 2019.
Tokyo has 33m people according to UN data released in November 2025, making it the world's fifth-largest city (behind Jakarta, Dhaka, Delhi and Shanghai). The Tokyo Metropolitan Government (TMG) is responsible for big-ticket public services such as water, sewage and public hospitals. Beneath it sit 23 wards and a host of peripheral cities and towns, each with its own elected mayor and assembly responsible for services such as schools, waste management and community planning. The TMG co-ordinates between them. The model is considered a sensible split that clearly delineates authority while making sure decision-making is joined up. Like the megacities of middle-income Asia, greater Tokyo has no single government body for the whole metropolitan area, which extends into the prefectures of Kanagawa, Chiba and Saitama. But the national government plays an important co-ordinating role, and a dense metro and commuter-rail network ties the region together: over 90% of people in the greater Tokyo area live within a 20-minute walk of a station.
Japan's population is expected to decrease by 30% to 87m by 2070. With a median age of almost 50, Japan is the world's oldest big country. Polls suggest a clear preference for girls. The National Fertility Survey shows that in 1982, 48.5% of married couples wanting only one child preferred a daughter; by 2002, 75% did. See son preference.
Japan has staggering numbers of young recluses known as hikikomori, most of whom are men, who have withdrawn from society entirely.
Young women are leaving the countryside and small-town Japan at higher rates than young men. In roughly 70% of Japan's 47 prefectures, the rate of female departure exceeds male departure. A government report in 2014 expressed alarm about the future of 900 municipalities—half the country's total—concluding that the number of women of child-bearing age in those places would fall by half within 25 years, and that these municipalities faced "extinction" as a result.
Officials in outlying places accept that young people leave for university or a first job, but count on them returning in their 20s or 30s. In Toyooko, a small city in western Japan, census data show that 52% of men who left as teenagers came back in their 20s; for women, the figure was just 27%. Tokyo and a handful of other urban centres are seeing the opposite trend, with more young women moving in than men.
The reasons are deeply entrenched: a shortage of good jobs for women, a wider gender pay gap than in the cities and many other forms of sexism. A government regional-revitalisation plan cited unconscious bias and inflexible gender roles as forces pushing women away. In many small offices, women still make the tea while men make the decisions. Many smaller places have established strategies to tackle gender discrimination, including training teachers and businesspeople. But local authorities send mixed signals: even those promoting gender equality also sponsor matchmaking schemes, such as hosting government-backed parties for young singles or getting local elders to encourage those who are too shy to pair off.
Foreign residents have doubled since 2010 to 3.7m, about 3% of the population—a league away from the OECD average of 15%. Japan may have to triple its number of foreign workers to nearly 7m by 2040 just to meet a modest target of 1.24% annual GDP growth, according to JICA, a government agency. Many new arrivals come through temporary-worker schemes (Vietnamese, Chinese and Filipinos make up the largest share). Foreigners work in convenience stores in the cities and in nursing homes, hotels, shipyards, factories and rice fields in the countryside.
LDP politicians insist the government has "no immigration policy", even though it has been expanding foreign-worker programmes behind the scenes. Activists say this disjointed approach has impeded discussions about how to protect and integrate arrivals, and has been a gift to Sanseito, which depicts the influx as a sinister "silent invasion". Japanese from the countryside tend to be more open to newcomers than urbanites, because labour shortages have hit rural areas hardest.
A record 36.9m foreign tourists visited Japan in 2024, more than four times as many as in 2010. Tourism is the country's second-largest export, after cars. Abe Shinzo set a target of 40m annual visitors in 2016; the number is thought to have surpassed that in 2025. France welcomes more than twice as many visitors despite having a population only about half as large. Visitors tend to concentrate in a handful of locations, making the influx seem larger than it is.
Takaichi Sanae's administration is mulling policies to satisfy anxious voters: a government body to handle badly behaving foreigners, hard limits on foreign-worker numbers, a crackdown on overstayers, higher taxes on tourists, language requirements for permanent residents and possible regulation of foreigners' property purchases. Japan's 47 prefectural governors banded together to issue a statement in support of multiculturalism: "Xenophobia must not be tolerated," said the leader of their association.
China first gave Japan a pair of pandas in 1972 to mark the normalisation of diplomatic ties, sparking a national craze. For over 50 years pandas have lived in Japanese zoos, becoming cultural icons. On January 25th 2026 tearful crowds bade farewell to Xiao Xiao and Lei Lei, twin pandas at Tokyo's Ueno Zoo—some 110,000 people applied for 4,400 viewing spots. For the first time in 54 years Japan is without pandas.
Officially, the twins left because their loan expired. But the departure is emblematic of cooling relations with China. At the end of 2025 Takaichi Sanae suggested Japan might intervene militarily if there were trouble over Taiwan. China furiously suspended seafood imports and restricted dual-use exports. Meanwhile, South Korea looks poised to receive new pandas following a cordial meeting between the two countries' presidents. A 2024 poll showed nearly 90% of Japanese have negative views of China.
Japan is a resource-poor country that imports virtually all its oil, gas and coal; in the OECD only Luxembourg relies more on imported energy. Japan holds a strategic oil reserve equivalent to 254 days of domestic demand, a buffer built up following the oil shocks of the 1970s. Nuclear power once seemed to offer a solution: by 2010 Japan had 54 operational reactors providing some 25% of its electricity, and the government aimed to expand that to around 50% by 2030. Then on March 11th 2011 the Great East Japan Earthquake sent tsunami waters flooding the Fukushima Daiichi nuclear plant, run by the Tokyo Electric Power Corporation (TEPCO). All reactors were shut for inspections. A new body, the Nuclear Regulation Authority (NRA), was established to enforce tougher oversight. Generous feed-in tariffs sparked a solar-power boom; gaps were filled by LNG and coal.
In recent years the government has changed course, offering less support for renewables while pushing harder for a nuclear revival. Russia's invasion of Ukraine reinforced energy-security concerns. Japan has pledged to reach carbon neutrality by 2050, and electricity demand is expected to rise with data-centre construction.
The latest energy plan foresees renewables accounting for 40-50% of electricity by 2040, up from around 25% recently. Mountainous land and a deep continental shelf complicate installing solar panels and wind turbines. Independent researchers from the Lawrence Berkeley National Laboratory estimate renewables could reliably generate 70% of electricity by 2035, but the key barriers are political: building codes requiring wind turbines to meet the same earthquake standards as tall blocks of flats, land-use regulation limiting the use of abandoned farmland for solar, and weak transmission lines. In 2024 new wind and solar construction fell to the feeblest pace for 17 years. Takaichi Sanae opposes "further covering our beautiful land with foreign-made solar panels."
Japan has 15 operational nuclear reactors; another three have received safety clearances but remain idle, while 18 others are still awaiting regulatory approval. The rest of the fleet has been decommissioned. To reach the plan's target of nuclear providing 20% of the electricity mix in 2040 (up from under 10% recently), nearly all 21 eligible reactors must come online. The government has extended the legal lifetime of reactors from 40 to 60 years, but most were built in the 1970s-1990s and will have to be phased out in the 2040s-2050s. Only one potential new plant has reached the stage of preliminary geological surveys.
Kashiwazaki-Kariwa (KK), the world's largest nuclear power station, sits along the Sea of Japan's northern coast. Its seven reactors could at full capacity provide energy for millions of homes. The plant is operated by TEPCO, which also ran the ill-fated Fukushima reactors. After winning long-sought approval from regulators and local authorities, TEPCO restarted the first of KK's reactors in February 2026—its first nuclear plant to restart since Fukushima. KK employs some 6,000 people, 80% from the surrounding prefecture of Niigata. Taxes and subsidies related to the plant accounted for more than 30% of the host city Kashiwazaki's total revenues at their peak; they still make up 16%.
Kashiwazaki's population shrank from over 100,000 in 1995 to under 75,000 in 2025. The city was brought nuclear power largely thanks to a native son, Tanaka Kakuei, a powerful post-war prime minister. The region has a deep history as a provider of power: one ancient chronicle speaks of "burnable water" sent from there as a gift to the emperor in 668, and in the late 19th century Japan's first modern oil company set up headquarters there.
Ms Takaichi is keen on nuclear fusion and perovskite, a lightweight and flexible type of solar cell that Japanese companies are developing. Japan also has high hopes for hydrogen and new geothermal technology.
More than 25% of Japanese aged above 65 remain at work, one of the highest rates in the OECD. More than half of elderly employees say they work for income. Seniority-based wage and promotion systems remain common, making it costly for firms to keep older workers on full-time contracts; many rehire retirees on temporary contracts with reduced pay and responsibilities. Japan has more than 1,300 Silver Human Resource Centres, which match people aged 60 or above with job opportunities. Since 2006 the government has encouraged firms to offer job opportunities until the age of 65; in 2021 it began urging employers to keep workers on until 70. Consulting on later-stage career options has become common practice at large firms. McDonald's Japan employs workers over 60 through its "Premium Age Crew" programme.
Hay fever (allergic rhinitis) is estimated to affect up to two in five people in Japan, one of the highest rates in the world. The government plans to replace 20% of the country's human-planted cedar trees with less allergenic species over the next decade, roughly equivalent to cutting down 70,000 hectares a year.
There is no cure for birth and death other than to enjoy the interval.