Japan's Prime Minister Shinzo Abe Resigns

Embattled Japanese Prime Minister Shinzo Abe said on Wednesday he would resign in hope of making it easier to extend a naval mission in support of U.S.-led operations in Afghanistan, sending shockwaves through Japan.

Shinzo Abe, incoming Prime Minister of Japan.
Yoshikazu Tsuno | AFP | Getty Images
Shinzo Abe, incoming Prime Minister of Japan.

The hawkish Abe, who took office a year ago promising to boost Japan's global security profile, has suffered low support rates and dwindling clout after his ruling camp suffered an election drubbing in July, but the announcement came as a bolt out of the blue.

"I determined today that I should resign," a weary-looking Abe told a news conference. "We should seek a continued mission to fight terrorism under a new prime minister."

The shock reports caused the yen and the Nikkei 225 Average to slip, on concerns about political uncertainty.

Abe had previously indicated that he would step down if he failed to extend a Japanese naval mission supporting U.S.-led operations in Afghanistan, but that had not expected to come to a head so soon.

Opposition parties, which won control of parliament's upper house in the July poll and can delay the enabling legislation for the mission, had been preparing to grill him on the topic in parliament on Wednesday afternoon.

"The timing is astonishing. It's a huge surprise. He said he would risk his job in passing the anti-terrorism law, so I don't know why he is resigning before making the effort," said Koichi Haji, chief economist at NLI Research Institute.

LDP Secretary-General Taro Aso, a close Abe ally who shares most of his hawkish views on security policy, is generally seen as frontrunner to succeed as LDP president and hence, prime minister.

Abe is expected to stay on in a caretaker role until a successor is chosen.

Deeply Unpopular

The LDP and its junior partner suffered a drubbing in the July election, and his support ratings have floundered amid a row over pensions and a series of financial scandals involving cabinet ministers.

Financial market players have been worried about the possibility that the stalemate over the naval mission and Abe's other woes would either prompt him to resign or spark a snap election for the powerful lower house, threatening political instability and a policy vacuum.

Abe had already been weakened by scandals and gaffes by ministers that contributed to the election disaster and had been expected to provide fodder for opposition grilling in parliament in the coming weeks.

Abe has put most of his energy into diplomacy -- improving ties with China and South Korea -- and pushing a conservative agenda that includes rewriting the pacifist constitution, so some analysts said his resignation might not affect economic policies all that much.

"The impact on economic policy may be limited, since there is no imminent issue that needs to be tackled in parliament," Haji said. "But the political uncertainty will surely sour market sentiment, so I expect stock prices to get hit. People may take a wait-and-see approach for now, but it would be hard to buy Japanese shares in the long term."

Headaches Ahead

Others, though, noted his successor would face a number of tough policy headaches.

"Abe probably wanted to start afresh as he thought that his ardent wish to change the constitution would not be realized even if he stayed on now. It is apparent that his administration is a lame duck," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"As for economic policy, his successor will have to take over the difficult task of balancing fiscal consolidation and efforts to revive regional economies, when changing the tax system is an option that is very difficult to take."