Japan: Political, Trade and Policy Uncertainty

Political, Trade and Policy Uncertainty for Japan as PM Ishiba resigns
U.S.-Japan reached a trade deal with 15% reciprocal tariff but details remain uncertain. Trump has signed an executive order to cap tariff rate for Japan at 15%, clarifying previous confusion on the calculation on final tariff rate. However, the investment commitment from Japan remains unclear as both sides were holding a different rhetoric in the 550 billions USD investment, in terms of profit sharing formula and the legal bindingness. The Japanese side has been playing to safe, for they know it is unwise to hurt Trump's face publicly, keeping their opposition low before a detailed negotiation. After multiple rounds of negotiation, it seems to suggest both sides have agreed on the magnitude of investment but so far no update on the profit sharing formula.
The resignation of Japanese PM Ishiba creates more uncertainty. After Ishiba's initial resistance to step down for the failure in election, he finally bow down to the party pressure and resigned over the weekend. Originally, the Japan LDP has scheduled a vote to oust Ishiba and was expected to be receive approval from most LDP parliamentarians. It is anticipated the LDP party leadership election will be held in early October. Ishiba has stretched his term until the memorandum between U.S.-Japan has been signed. To be fair, the issue for LDP also existed before Ishiba took power in late 2024 and he will unlikely be the last one to have to deal with LDP's predicament.
The political uncertainty mostly lies in LDP's compromise to receive opposition support. The opposition parties are mostly calling for less tax and higher fiscal spending, risking the worsening of the Japanese fiscal health. Such brings forward more monetary policy uncertainty. The higher inflation has been amping up pressure on the BoJ. The BoJ has been watering it down with transitory inflation factor but with ex-fresh food & energy CPI elevated above 3%, it is difficult for BoJ to keep holding. We continue to see a October hike from the BoJ with underlying inflation supportive and less uncertainty on U.S.-Japan trade. A September hike is mostly ruled out on a political shift and the lack of commitment from the BoJ sees little urgency for their next step.