For the first time in its history, Japan’s parliament has selected a woman, Sanae Takaichi of the Liberal Democratic Party, to be prime minister. In this sense, Takaichi has already followed in the footsteps of her political idol, Margaret Thatcher – the United Kingdom’s first female prime minister. But whether she is remembered as Japan’s own “Iron Lady” will depend on her ability to manage three key challenges: inflation, low female labour-force participation, and a fraught geopolitical environment.A protégé of former Prime Minister Abe Shinzo, who was assassinated in 2022, Takaichi has promised to revive his economic-policy approach – so-called Abenomics – which used monetary and fiscal expansion to lift Japan out of decades of deflation and recession. But the situation Abe confronted in 2012 was very different from the one Takaichi faces today. Back then, an overvalued yen had triggered deflation and was fuelling underemployment, so aggressive monetary easing was vital to stem currency appreciation.Today, by contrast, Japan is experiencing its first bout of inflation in decades. Yen depreciation is causing Japan’s terms of trade to deteriorate, with lower export prices reducing revenues, and higher import costs squeezing Japanese households. Moreover, as of September 2025, the jobs-to-applicants ratio was 1.2, indicating that, far from an unemployment problem, Japan is now grappling with a labour shortage. And while the stock market appears strong, there is a risk of a bubble, which could harm investors in the event of a collapse.Far from Abenomics-style monetary expansion, current conditions dictate that the Bank of Japan (BoJ) should raise the short-term policy rate. BoJ Governor Kazuo Ueda is well aware of this imperative, but he is hesitating to act on it. The last thing he wants is a repeat of the stock-market turmoil in September 2023, after he floated the idea of hiking short-term interest rates.But that reaction simply reflected how accustomed to low interest rates Japanese investors have become; it did not mean that the policy was misguided. Ueda must now find the courage to do what he failed to do in 2023: raise the policy rate, and keep it raised. While there may be some short-term pain, it will soon become clear that reining in inflation is much easier than escaping deflation, as Japan did under Ueda’s predecessor, Haruhiko Kuroda.On the second challenge – increasing women’s labour-force participation (and thus overall productivity) – Takaichi might seem like the ideal candidate to drive progress, given her success in shattering Japan’s political glass ceiling. And she did make some encouraging pledges during her campaign, such as tax breaks for companies that provide in-house childcare services and expanded women’s health services. She also vowed to increase the number of women in Japan’s cabinet to “Nordic levels” – or close to 50%.At the same time, however, Takaichi is a genuine conservative, who has long advocated traditional gender roles. For example, she has opposed legislation allowing married women to keep their maiden names. And she has so far appointed only two women ministers (out of 19) to her cabinet. Fortunately, one of them is Finance Minister Satsuki Katayama, who could remove one key barrier to women joining the workforce: the additional tax burdens dual-income households face if the second partner’s income exceeds 1.5mn yen (about $10,000) per year.The third challenge – ensuring Japan’s security at a time when geopolitical tensions are running high – may be where Takaichi is best-suited to shine. Like Abe, she takes a tough-minded approach to security, reflected in her calls to ease restrictions on the country’s Self-Defence Forces, which are prohibited from developing offensive capabilities, and accelerate a military buildup.Given Japan’s proximity to China and North Korea, this stance may be more justifiable than the pacifism to which most Japanese still cling. While there is no place for antagonism, Japan must be able to stand its ground. At her recent meeting with Chinese President Xi Jinping in Gyeongju, Takaichi signalled that she was prepared to do just that, coming across as confident and resolute. She also needs to continue her predecessor’s efforts to nurture positive relations with South Korea, a democratic neighbour facing the same security challenges as Japan.As for the US – on which Japan’s security still depends – Takaichi’s conservative nationalism has ingratiated her with President Donald Trump, who lavished her with praise on his recent trip to Tokyo. But Takaichi must remain vigilant in her dealings with the erratic, transactional Trump. The bilateral trade deal Takaichi and Trump signed at their meeting – which includes high US tariffs and steep investment demands – is likely to undermine the Japanese people’s welfare. She should also embrace Abe’s vision of a “Free and Open Indo-Pacific”, to navigate a world shaped by the US-China rivalry.Thatcher’s legacy reflects not only her iron will, but also her oft-forgotten policy flexibility and realism. If Takaichi is to be the leader Japan needs, she must deliver on both fronts. – Project Syndicate• Koichi Hamada, Professor Emeritus at Yale University, was a special adviser to former Japanese Prime Minister Abe Shinzo.

The US Senate has taken a major step toward re-opening the government after a group of moderate Democrats broke with their party leaders and voted to support a deal to end the record-breaking shutdown. Democratic senators broke ranks to join Republicans in a 60-40 vote passing a compromise deal, sparking intra-party backlash. Government shutdowns have become a recurring feature of US politics, the product of partisan standoffs over spending that force federal agencies to halt a wide range of services. The latest shutdown — the third under President Donald Trump across his two terms — began at midnight on October 1, when Congress failed to pass a stopgap funding measure, triggering the nation’s first government closure in almost seven years. Democrats are demanding that a stopgap bill include an extension of Affordable Care Act premium subsidies and a reversal of Medicaid funding cuts — conditions Republicans have rejected, leaving the two sides deadlocked and the shutdown unresolved. The US government runs on 12 appropriations bills passed each year by Congress and signed by the president. In fiscal years like the current one, when all 12 bills aren’t adopted by the October 1 start of the fiscal year, Congress and the president keep the machinery of government humming by passing short-term extensions of current funding, known formally as continuing resolutions, or CRs. If they can’t agree to a CR, the US government has what’s called a funding gap and federal agencies may need to take steps to shut down. There have been 15 shutdowns since 1981. The second longest shutdown in US history — over Trump’s insistence on adding $5.7bn to the budget for a wall on the border with Mexico — spanned 35 days in late 2018 into early 2019. Not only is the ongoing shutdown the longest in US history, but it’s likely going to be the most economically damaging. Historically, the economic damage from shutdowns is fleeting, quickly reversing when the government reopens. However, the 40-day lapse in funding that began on October 1 is already dealing a significant – albeit temporary – blow to the world’s largest economy. Millions of Americans are not getting food stamp benefits needed to feed their families. Roughly 1.4mn federal employees haven’t been paid – even though many are still working. And investors and policymakers are in the dark about what’s happening in the US economy because the release of government data has stalled. Two monthly jobs reports have fallen victim to the shutdown and a key inflation snapshot due in the coming week is also in jeopardy, illustrating a thickening data fog for a Federal Reserve that’s the most divided in recent memory. The nonpartisan Congressional Budget Office estimates the shutdown will reduce GDP by one to two percentage points. “Those effects will intensify the longer the shutdown lasts,” the CBO wrote in a letter last week. Although “most of that decline” will eventually be recovered, CBO estimates between $7bn and $14bn will be permanently lost during the shutdown. Goldman Sachs is now penciling in weaker fourth-quarter GDP growth of just 1%. That would represent a significant slowdown from the 3% or even 4% growth that was projected for the third quarter. “The current shutdown looks likely to have the greatest economic impact of any shutdown on record,” according to Alec Phillips, chief political economist at Goldman Sachs. Estimates of the economic impact range from $7bn to $16bn per week, with the White House’s Council of Economic Advisers, a US government agency, forecasting a weekly loss of $15bn. A recent CBS News poll found that 54% of Americans said they are “very concerned” about how the shutdown is affecting the economy. Even if the shutdown ends in the coming days, it will likely slow down the growth of real gross domestic product, without considering inflation — by 1.15 percentage points during the fourth quarter, according to Goldman Sachs.