Japanese politics: Brinkmanship or break-up?

On 10 October, after the Japanese stock market closed, the Komeito Party announced its decision to withdraw from its 25-year coalition with the Liberal Democratic Party. This feels like the sharpest rupture in their shared history, but it is not without precedent.

Since joining the LDP-led government in 1999, the Buddhist-backed party has repeatedly clashed with its larger partner. On several occasions Komeito has threatened to pull out, pause cooperation, or withhold votes, only to return once its demands were met. Here is a reminder of those episodes:

2003-2005: The Iraq deployment dispute

The first major test came under Prime Minister Junichiro Koizumi, whose decision to send Japan’s Self-Defense Forces to Iraq in late 2003 alarmed Komeito’s pacifist base. Party leaders signalled they could not remain in a government that sanctioned overseas combat.

After weeks of behind-the-scenes negotiation, the LDP agreed to frame the mission as “humanitarian and reconstruction support,” allowing Komeito to claim a moral boundary had been upheld. The rift began in December 2003 and eased by February 2004, lasting about two months from confrontation to reconciliation.

2015: The battle over collective self-defence

In early 2015, Prime Minister Shinzo Abe’s plan to reinterpret Article 9 of the Japanese Constitution, often referred to as the “pacifist clause”¹, provoked one of the coalition’s most serious confrontations. Komeito refused to endorse the collective self-defence bills, warning that “public trust in the coalition will not survive if this continues.”

Months of negotiation followed. By July, Abe had accepted tight legal limits on Japan’s use of force abroad, giving Komeito the political cover to back the bills. The dispute spanned roughly six months before order was restored.

2017: The election coordination revolt

When Abe called a snap election in September 2017, Komeito objected to the LDP’s encroachment into its urban constituencies. Anonymous officials hinted that Komeito might campaign independently in Tokyo and Osaka, creating real anxiety within the LDP.

The threat worked quickly. Within three weeks, the LDP conceded safer proportional-representation slots and campaign resources. The election went ahead with a united front, and the rift closed almost as fast as it opened.

2021-2022: Friction under Kishida

Prime Minister Fumio Kishida’s early term brought new strains. In late 2021, Komeito resisted his plans to expand defence spending and criticised uneven pandemic relief. The party delayed votes in the Diet (Japan’s legislature) and hinted that the coalition’s “policy balance” had been lost.

The stand-off lasted through the winter. By May 2022, Kishida softened his fiscal proposals and restored a measure of trust, roughly five months after tensions surfaced.

2025: The present situation

On 10 October, Komeito leader Tetsuo Saito told LDP President Sanae Takaichi that the party would withdraw from the coalition, citing dissatisfaction with how the LDP handled the “politics and money” scandal linked to factional slush funds.

Komeito suspended electoral cooperation and announced it would not vote for Takaichi in the upcoming prime-ministerial election. The rift is ongoing and, if it endures, would mark the coalition’s first true collapse.

Is it different this time?

Whether lasting weeks or months, every past confrontation between the LDP and Komeito has ended in compromise. Komeito has always returned after securing symbolic concessions that reaffirmed its independence and moral standing. Will the pattern repeat?

Past episodes were framed as disagreements within the coalition, usually with Komeito urging “reflection” or “temporary reconsideration” of policy direction. This time, the language is closer to rupture than reproach. Tetsuo Saito spoke of “putting an end to our relationship to date” and explicitly said the party “will not support LDP candidates” or vote for Takaichi as prime minister. This is notably more severe rhetoric than seen in prior breaches.

In addition, the grievance over money and ethics is moral rather than ideological. Komeito has tolerated rightward drift before, but not perceived corruption. It is hard to reconcile “clean government” rhetoric with defending LDP slush funds, especially in front of the Soka Gakkai religious base. Moreover, Takaichi represents a more nationalist and less conciliatory brand of conservatism than leaders like Kishida or Abe. Komeito may doubt it can moderate her government the way it once did others.

Whilst the door-gap to re-alignment looks narrow, it’s not closed. Despite “final” language, Japanese politics often leaves room for retreat once each side has demonstrated principle. Takaichi may yet turn this around.

What if?

It is difficult to predict how or when this will end. If Komeito and the LDP do fail to realign, Japan would face a level of political instability not seen since the late 1990s. The LDP could continue governing, but without Komeito’s 40 seats across both chambers it would likely lose its automatic Diet majority and be forced into ad hoc negotiations with centrist groups such as the Democratic Party for the People or Nippon Ishin no Kai. Every major bill such as budgets, tax reforms, and defence measures would require new deals, turning stable coalition governance into case-by-case bargaining.

Policy momentum would likely slow sharply. Fiscal and defence policy would be most affected: stimulus packages and tax adjustments could stall, while Takaichi’s ambition to expand defence spending and revise the constitution might gain ideological freedom but lose legislative traction. The moderating influence that kept LDP hawks in check would vanish, polarising debate and unsettling the public mood.

For Komeito, life outside government would be existentially dangerous. Its appeal to Soka Gakkai supporters rests on tangible influence, not protest. Cut off from policymaking, the party could lose cohesion and half its seats in the next general election.

Market implications

So far, the market reaction has been sharp but not disorderly. Futures sold off immediately on the headline, but the move reflects uncertainty rather than panic. Investors have seen similar political dramas in Japan before and tend to assume that either reconciliation or a workable new alignment will emerge within weeks.

If the split endures, the main risk is policy drift, not systemic instability. Markets care less about who governs than about whether budgets, stimulus, and Bank of Japan (BOJ) coordination continue smoothly. As long as the LDP retains effective control and the BOJ maintains its stance, the fundamental backdrop of strong corporate balance sheets, improving return on equity, and steady domestic demand remains intact.

Some short-term volatility should be expected as investors reprice sectors most exposed to policy uncertainty. Japanese government bond yields could tick up slightly as political risk premiums widen, but there is little reason to expect broader market stress.

In short, we believe this is a headline shock, not a structural one.
 

¹ Article 9 of the Japanese Constitution, often referred to as the “pacifist clause,” prohibits Japan from resorting to war to resolve international disputes.