Japan’s political landscape faces new uncertainty after Komeito, the junior coalition partner, announced its exit from the 26-year alliance with the ruling Liberal Democratic Party (LDP), following Sanae Takaichi’s rise as party leader. The split, triggered by her decision to dismiss concerns over a campaign funding scandal, dims her prospects of securing enough parliamentary support to become Japan’s next prime minister and complicates governance if she succeeds.

The yen strengthened about 1% against the dollar after the announcement, partially reversing the 4% decline seen after Takaichi’s leadership victory on October 8. Analysts noted that the muted market reaction reflects investor uncertainty in a shifting political environment where LDP dominance is being challenged.

Takaichi, who would become post-war Japan’s first female prime minister if elected, now faces a more isolated party environment, making it difficult to pass major initiatives such as her expansive fiscal spending plans. Securing approval for a supplementary budget this year will likely require substantial compromise with opposition parties.

While the opposition is currently unable to consolidate behind a viable challenger, the coming parliamentary ballot early next week will be closely watched by investors, as the outcome could set the tone for Japan’s economic and fiscal policy amid a fragile political equilibrium.