Japanese Prime Minister Shigeru Ishiba said on Sunday he had decided to resign, ushering in a potentially lengthy period of policy paralysis at a shaky moment for the world's fourth-largest economy.

Ishiba, 68, instructed his Liberal Democratic Party (LDP) – which has governed Japan for almost all of the post-war era – to hold an emergency leadership race, he told a press conference, adding he would continue his duties until his successor was elected.

Since coming to power less than a year ago, Ishiba has overseen his ruling coalition lose its majorities in elections for both houses of parliament amid voter anger over rising living costs.

Until Sunday, he had refused calls to step down following the latest of those losses in July's upper house vote. He had focused instead on ironing out details of a trade deal with the United States on President Donald Trump's tariffs, which have roiled Japan's critical automotive industry and cast a shadow over weak growth.

"With Japan having signed the trade agreement and the president having signed the executive order, we have passed a key hurdle," Ishiba said, his voice seeming to catch with emotion. "I would like to pass the baton to the next generation."

Concern over political uncertainty led to a sell-off in Japan's yen currency and its government bonds last week, with the yield on the 30-year bond hitting a record high on Wednesday.

Speculation over Ishiba's fate was stoked by the LDP's decision to schedule a vote for Monday on whether to hold an extraordinary leadership election.

Political turmoil

Media reports said earlier that Ishiba wanted to avoid a split in the party and that he was unable to withstand the mounting calls for his resignation.

Japan's farm minister and a former prime minister reportedly met with Ishiba on Saturday night to urge him to resign voluntarily.

Four senior LDP officials, including the party's number two, Hiroshi Moriyama, offered to resign last week.

Opponents of Ishiba had been calling for him to step down to take responsibility for the election results following the upper chamber vote in July.

Those backing the move included Taro Aso, the influential 84-year-old former prime minister, according to Japanese media.

According to NHK, the political turmoil highlights profound internal conflicts within the LDP. The exit of the Ishiba administration, battered by issues like rampant inflation and U.S. tariffs, is setting the stage for an imminent power transition.

Ishiba's term as party leader was supposed to end in September 2027. His most prominent rival, Sanae Takaichi, who is seen as a hardline nationalist, all but said on Tuesday that she would seek a contest.

Voters are less than keen on the hawkish Takaichi, runner-up in the last leadership election in 2024. A Nikkei survey held at the end of August put Takaichi as the most "fitting" successor to Ishiba, followed by farm minister Shinjiro Koizumi, but 52 percent of respondents said a leadership contest was unnecessary.

The LDP has governed almost continuously since 1955, but voters have been deserting the party, including towards fringe groups such as the populist Sanseito.

Factors include rising prices, notably for rice, falling living standards and anger at corruption scandals within the LDP.

(With input from Reuters)