US Tariffs Push ASEAN to Rethink Trade Strategy: Closer to China or Stronger Together?

Economic

Summary:

As the US imposes steep tariffs on Southeast Asian exports, countries like Vietnam, Cambodia, and Thailand face significant losses. However, rather than pivoting entirely toward China, ASEAN may seize this moment to deepen intra-regional trade...

Sharp Decline in ASEAN Exports to the US

A recent UNDP report forecasts a 9.7% drop in ASEAN’s exports to the US due to rising tariffs, with key industries such as electronics, apparel, and footwear most affected. This comes as part of a broader 6.4% decline in Asia-Pacific exports to the US, but Southeast Asia being deeply embedded in global supply chains is expected to bear the brunt.

Vietnam, which exported over $136.5 billion to the US last year, is projected to suffer a 19.2% decline in export value due to tariffs as high as 20% on core products. Cambodia, heavily reliant on the US for 58% of its total exports, could see a 23% drop. Thailand, Malaysia, and Indonesia are also bracing for declines between 6.4% and 12.7%.

Semiconductor Sector at Risk

The region's role as a semiconductor hub could backfire if the US moves forward with a proposed 300% tariff on imported chips. A suggested tariff model based on the number of chips per electronic device could severely impact manufacturing centers like Malaysia, Vietnam, and Singapore, while discouraging investment.

While some analysts predict ASEAN may lean more toward China as a trade partner and investment source, most Southeast Asian economies still view China primarily as a supplier of raw materials not as a major buyer of their exports. Despite upgrades to the ASEAN-China Free Trade Area, structural limitations and fierce domestic competition in China’s market, especially for sectors like semiconductors, remain hurdles.

Opportunity for Regional Strengthening

Experts argue that this disruption presents a unique opportunity for ASEAN to shift toward intra-regional trade and value-added production. Countries like Vietnam and Singapore have already secured free trade agreements with the EU and other markets, offering alternative paths forward.

The challenge, however, lies in the region’s tendency to compete in similar product categories, complicating deeper integration. Still, if ASEAN can strengthen its internal market and evolve toward higher-value industries, current tariff barriers may act as a catalyst for long-term resilience and economic diversification.

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Building Approvals Plunge, Widening Supply Gap

New data from the Australian Bureau of Statistics reveals that Australia’s housing market continues to underperform against its national construction targets. In August 2025, building approvals fell by 6%, following an 8.2% drop in July. The slump was driven mainly by a decline in apartment approvals, which dropped 8.1% to just 5,408 units. On an unadjusted basis, the number of approved apartment units plummeted by 33.4%, hitting 2,704 the second-lowest monthly figure over the past year.

The downturn was most pronounced in New South Wales and Victoria, with only 527 and 342 apartment approvals respectively in August, highlighting geographic bottlenecks in key urban markets.

Quarterly Data Signals Persistent Underperformance

AMP financial economist My Bui estimates that, based on current quarterly approval rates, Australia will likely only construct around 191,000 new homes annually. This figure falls significantly short of the National Housing Accord’s annual target of 240,000 units, which is needed to address a longstanding supply deficit estimated between 200,000 and 300,000 dwellings.

This growing shortfall threatens the Albanese government’s goal of building 1.2 million new homes by 2029, a central plank of its housing affordability strategy. Despite recent policy initiatives and supportive demographics, the pace of approvals suggests a persistent lag between planning and delivery.

Apartment Construction Key to Unlocking Supply

According to My Bui, one of the core issues lies in the composition of building approvals, with a notable decline in apartment and townhouse developments. This is a marked contrast to the 2015–2017 period, when these housing types comprised nearly 60% of all approvals. In 2025, that share has dropped to approximately 40%, reflecting a shift toward detached housing and a slowdown in medium-to-high density residential projects.

This change in development patterns has contributed to a structural drag on overall housing supply growth, particularly in dense urban centers where affordability pressures are most acute. Furthermore, regulatory delays, rising construction costs, and local planning resistance have added friction to the approval process.

Population Growth Outpacing Housing Supply

Although the total number of housing approvals remains generally aligned with population growth trends, the mismatch in housing type and geographical distribution continues to strain the market. This imbalance exacerbates affordability issues, especially in metropolitan regions where demand for multi-family housing remains strong but supply is constrained.

The data suggests that policy alone may be insufficient without corresponding shifts in development incentives that encourage apartment construction. Boosting density, streamlining approval processes, and unlocking urban land reserves may be critical levers to reverse the current trajectory.

Australia’s inability to sustain a robust pace of housing approvals, particularly in the apartment sector, threatens to derail its long-term housing goals. With approvals still trailing peak levels from 2017 and 2021 by roughly 25%, the path to reaching the 1.2 million target appears increasingly narrow. Without targeted interventions to reignite apartment construction and improve planning efficiency, the gap between housing needs and available supply may continue to widen intensifying affordability challenges for future generations.

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Stalemate Over Budget Sends Government into Partial Shutdown

At 12:01 a.m. ET on October 1, 2025, the U.S. federal government entered its first shutdown in seven years after Congress and President Trump failed to reach a last-minute funding deal. Both Republican and Democratic spending bills were blocked in the Senate, with no compromise offered. Instead of negotiating, both sides spent the final hours shifting blame, leaving more than 400,000 federal employees furloughed and many services halted.

This shutdown mirrors the 2018–2019 episode then also under Trump which became the longest in American history. The new shutdown arrives amid a far more fragile economic environment, with global uncertainty, tighter monetary conditions, and a looming data blackout that could impair the Federal Reserve’s decision-making.

Immediate Economic Impacts: Data Delays and Worker Furloughs

Among the first casualties is the federal government’s economic data pipeline. The Bureau of Labor Statistics (BLS), Commerce Department, Census Bureau, and Bureau of Economic Analysis will cease most operations, halting releases such as Friday’s scheduled jobs report and key inflation or growth data in the coming weeks.

This data blackout injects uncertainty into financial markets, particularly as the Federal Reserve recently pivoted to interest rate cuts amid a cooling labor market. Without updated indicators, the risk of policy miscalculation increases, potentially amplifying volatility in asset prices and investor confidence.

Trump Hints at Mass Layoffs, Pressures Democrats with Shutdown LeveragePresident Trump, speaking on the eve of the shutdown, indicated that his administration would use the moment to execute irreversible changes, including potential mass terminations of federal staff. Though current contingency plans do not reflect mass layoffs, the political tone has shifted toward executive pressure tactics, raising both political and economic stakes.

A Bloomberg review of agency plans revealed furloughs for hundreds of thousands of employees but no systemic plans for permanent downsizing yet Trump’s rhetoric suggests that deeper cuts may be under consideration if the impasse drags on.

Essential Services Continue, but Cracks May Appear

Like in previous shutdowns, Social Security, Medicare, and mail delivery will continue, and TSA agents and air traffic controllers will work unpaid. But experience from 2018 suggests rising absenteeism and service disruptions could still occur, especially in transportation and security.

The Federal Reserve, which is self-funded, remains operational. However, its upcoming interest rate deliberations especially the meeting set for late October will be complicated if shutdown-induced data gaps persist.

New Tariffs Add to Economic Uncertainty

Compounding the shutdown’s effects, Trump’s new tariff policies also began on October 1. These include:

100% tariffs on branded or patented pharmaceutical products, with carve-outs for companies operating in the U.S.

25% tariffs on imported heavy-duty trucks, aimed at shielding domestic manufacturers.

Additional tariffs scheduled for October 14, including:

10% on softwood timber and lumber

25% on upholstered wood furniture, with the possibility of further increases in January 2026.

Of particular concern is whether these tariffs may violate USMCA provisions, especially those impacting trade with Mexico. The administration has not clarified the legal framework or provided guidance on implementation exceptions, increasing trade and compliance risks for businesses.

Trump has also floated more aggressive protectionist measures, such as 100% tariffs on foreign-made movies and potential blanket tariffs on furniture from countries not producing inside the U.S. though these remain undefined in scope or timing.

Markets and Investors Brace for Prolonged Impact

Financial markets are bracing for short-term volatility. The shutdown may dampen consumer sentiment, delay investment decisions, and stall federal contract flows. More critically, investors now lack visibility into economic health, just as the Fed adjusts its policy tools in response to fragile labor trends and tariff-induced inflationary pressures.

Market participants will watch closely for signs of resolution or escalation. If Senate leaders fail to agree on a deal over the coming days, and Trump follows through on additional structural changes, investor confidence could erode more sharply.

The 2025 government shutdown opens a volatile new chapter for the U.S. economy. With stalled negotiations, aggressive trade measures, and a looming information blackout, both households and markets are left in limbo. While essential services continue, the shutdown’s duration and policy fallout will determine how deep the damage runs and how hard it will be to reverse. As economic, labor, and geopolitical uncertainties converge, the cost of political gridlock may grow with each passing day.

Source: Yahoo Finance

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Essential Programs Like Social Security and Medicare Remain Funded

Despite the shutdown commencing at midnight on Tuesday, core entitlement programs such as Social Security, Medicare, and Medicaid will continue uninterrupted. Monthly checks for retirees and health coverage for seniors and low-income groups remain protected by mandatory funding streams, ensuring that millions of Americans relying on these services won’t see immediate disruptions.

However, nutritional assistance programs like SNAP and WIC could face funding risks if the shutdown persists for an extended period. WIC, in particular, operates on a thin budget and could be among the first to feel the impact.

Student Loan Processing and Grants Face DelaysStudent loan borrowers are among the most directly affected groups. With a 50% reduction in the Department of Education’s workforce already implemented earlier this year, the shutdown compounds the strain. Processing of grants, forgiveness programs, and customer service responses could experience slowdowns or temporary halts.

Programs such as Pell Grants and Federal Direct Student Loans continue to disburse funds but only as long as available appropriations last. If the shutdown is prolonged, even these federally mandated disbursements could see bottlenecks. For students, this means potential delays in tuition payments, application processing, and financial aid inquiries.

Travel Infrastructure Stays Functional but Expect Delays

Airport security (TSA) and air traffic control are considered essential services and remain operational. However, travelers should anticipate longer wait times and potential staffing shortages, particularly if the shutdown continues. Services like passport renewals and visa applications are still running provided they’re funded through user fees but may slow down due to reduced staffing or budget constraints.

National parks, museums, and federally funded attractions may either close entirely or offer reduced services. Travelers are advised to monitor conditions and consider flexible travel plans or insurance, especially when relying on government-dependent sites or services.

Markets React: Gold Surges, Volatility Looms

Markets have shown early signs of unease. Investor sentiment may be disrupted if the shutdown drags on and key economic data releases are delayed particularly employment figures critical for the Fed’s rate decisions. With the Federal Reserve recently lowering interest rates to address a cooling labor market, missing data could cloud future decisions and increase the risk of policy missteps.

In this environment of uncertainty, gold prices have soared to record highs, reflecting its traditional role as a safe-haven asset. Investors are advised to expect short-term volatility in equities and bonds, but long-term investment strategies should remain grounded. Avoid knee-jerk reactions like prematurely withdrawing from retirement funds or selling at a loss.

Impact on the Broader Economy and Fed Strategy

While short shutdowns have historically had limited macroeconomic damage, the key risk now lies in disrupted data flow to the Fed. Without current metrics on jobs, inflation, and spending, monetary policy may become less accurate potentially leading to delayed or inappropriate interest rate moves.

This is particularly important amid concerns over new tariffs and their inflationary impact. If the Fed acts without complete information, it could exacerbate existing economic challenges, especially if labor markets soften further or inflation rebounds.

Federal Paychecks, VA, and Military Impacts

Nonessential federal employees are furloughed without pay until the government resumes operations. Contractors and companies dependent on federal contracts may also initiate temporary layoffs or reduced hours.

Military base commissaries and some regional Veterans Affairs offices may temporarily close. However, VA hospitals and veteran benefits continue uninterrupted, which offers some protection to service members and veterans relying on these resources.

The 2025 U.S. government shutdown may be politically driven, but its effects on personal finances are real and potentially far-reaching. While core programs remain operational, students, travelers, investors, and federal workers are already seeing ripple effects. The longer the impasse drags on, the more these disruptions could deepen fueling economic uncertainty and possibly triggering broader financial consequences. For now, caution, patience, and strategic financial planning are the best defenses.

Source: Yahoo Finance

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Bank Transfers Mandatory for Gold Transactions Over VND 20 Million

From October 10, 2025, under Decree 232/2025, all gold transactions above VND 20 million per day per customer must be processed via bank accounts, replacing previous cash-based practices. The regulation aims to enhance financial transparency in the gold market.

Additional provisions liberalize the gold bar production industry by removing the state monopoly on gold bullion production, import, and export. Enterprises must meet strict licensing criteria, including a minimum charter capital of VND 1,000 billion. For commercial banks applying to produce gold bars, the threshold is VND 50,000 billion in charter capital.

Vietnam Implements OECD Global Minimum Tax Rules

Decree 236/2025/NĐ-CP, effective October 15, enforces the global minimum tax under OECD’s anti-base erosion framework. Multinational corporations with consolidated revenues of at least €750 million in two of the four previous years are subject to top-up corporate tax, payable to the central budget.

The regulation targets profit shifting by global firms and aligns Vietnam with the international effort to curb tax avoidance. Multinational groups newly formed for fewer than four years must still comply if they meet the income threshold.

Corporate Income Tax Reform Benefits SMEs and Green Investments

The 2025 Corporate Income Tax Law, effective October 1, introduces tiered tax rates:

Enterprises with annual revenue below VND 3 billion: 15% tax rate

Enterprises with VND 3–50 billion: 17% tax rate

Preferential tax treatments apply to high-tech enterprises, green bond investors, and companies transferring carbon credits or emission reductions. Eligible businesses can enjoy up to 4 years of full tax exemption, followed by up to 9 years of 50% reduction, depending on the investment’s nature.

This policy reinforces government priorities in sustainable development, innovation, and the promotion of clean technologies in agriculture, manufacturing, and digital transformation.

Expanded Industrial Support Through New Industrial Promotion Policy

Decree 235/2025/NĐ-CP, also effective October 15, expands the scope of industrial promotion incentives to include:

Craft villages and SMEs investing in industrial production

Green technologies, circular economy models, and environmental industries

High-tech, low-emission manufacturing

Artisans in traditional craft sectors

The decree widens access to state-supported programs for industrial clusters, incubators, and rural enterprises adopting clean production practices or digital transformation tools.

Innovation Law Offers Legal Immunity for Controlled Experiments

Effective October 1, the 2025 Law on Science, Technology, and Innovation formally recognizes “innovation” as a legal term and introduces provisions that shield participants in controlled scientific experiments from civil, administrative, and even criminal liability, under strict conditions.

For researchers and startups conducting high-risk trials for public benefit, the law exempts liability if all protocols are followed, risk mitigation is attempted, and there is no intentional harm. This policy marks a bold legal step toward encouraging bold experimentation and tech advancement in Vietnam.

Mandatory Digital Toll Account Conversion for Motorists

Decree 119/2024/NĐ-CP, effective October 1, requires all vehicle owners using expressways to convert their existing ETC fee accounts into “traffic accounts” linked to their personal digital payment systems. Failure to comply means ineligibility for non-stop toll services.

This shift supports cashless infrastructure, integrates national databases, and promotes more efficient road fee collection.

Education Reform: School Suspensions for Discipline Officially Abolished

The Ministry of Education’s Circular 19/2025, effective October 31, abolishes punitive suspensions such as one-week or one-year school exclusions. Instead, disciplinary actions are now developmental and rehabilitative:

Primary students: Only verbal warnings or requests to apologize

Secondary and high school students: Written self-assessments, formal warnings, or counseling

Additionally, a new reward category called “commendation letter” recognizes students who demonstrate exceptional self-improvement or social contribution. These changes reflect a child-centered approach that discourages humiliation or exclusion in educational settings.

Vietnam’s October 2025 policy rollout represents a multi-sectoral transformation from fiscal transparency and global tax compliance to educational compassion and legal innovation protection. These policies not only align the country with international standards but also aim to create a more inclusive, sustainable, and digitally integrated economy. As these laws come into effect, both businesses and individuals will need to adapt to a rapidly modernizing legal and financial landscape.

To stay updated on all economic events of today, please check out our Economic calendar

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Daily News

[Quick Facts]

1. Iranian President: The U.S. has no intention of resolving the Iranian nuclear issue through negotiations

2. Hamas: Will study the U.S. “20-point plan” and provide a formal response

3. Bank of England Deputy Governor Breeden warns of high interest rate risks, further highlighting internal divisions

4. U.S. consumer confidence index hits lowest level since April

5. A record-breaking 150,000 federal employees left their jobs by the end of September

6. Sources: OPEC+ will consider a more substantial increase in oil production

7. Australian home prices post biggest monthly gain in two years

8. The U.S. government faces imminent shutdown

9. Thune: Vote on reopening government will be held on Wednesday

[News Details]

Iranian President: The U.S. has no intention of resolving the Iranian nuclear issue through negotiations

On September 30 local time, Iranian President Pezeshkian stated during a meeting that the actions of U.S. officials regarding Iran's nuclear issue demonstrate their lack of intent to resolve matters through negotiations and fair logic. Instead, they seek to intensify pressure on the Iranian people and stir domestic discontent by activating the “rapid sanctions restoration” mechanism. Pezeshkian emphasized that through the concerted efforts and solidarity of all Iranian parties, by prioritizing safeguarding people's livelihoods while cutting expenditures, optimizing energy management, and expanding trade with neighboring countries, these sinister schemes will ultimately fail.

Hamas: Will study the U.S. “20-point plan” and provide a formal response

Regarding the U.S. proposal to end the Gaza conflict, the Palestinian Islamic Resistance Movement (Hamas) stated on September 29 local time that it had received the “20-point plan” proposed by U.S. President Donald Trump to end the Gaza conflict through mediators Qatar and Egypt, and would carefully study it. A Hamas source said on the 29th that Qatari Prime Minister and Foreign Minister Mohammed and Egyptian General Intelligence Service Director Rashad met with the Hamas negotiating delegation in the Qatari capital of Doha that day to deliver the U.S. “20-point plan.” The Hamas negotiating delegation indicated it would study the proposal and provide a formal response.

Bank of England Deputy Governor Breeden warns of high interest rate risks, further highlighting internal divisions

Diverging views within the Bank of England became more apparent on Tuesday as Deputy Governor Sarah Breeden warned that keeping interest rates elevated for too long could threaten the economy. Breeden stated that suppressing renewed inflationary pressures by maintaining borrowing costs at restrictive levels carries downside risks. She downplayed several factors potentially keeping price growth elevated, including a recent rise in household inflation expectations, but refrained from commenting on whether the Bank should cut rates at its next meeting in November. Just hours earlier, external Bank of England committee member Catherine Mann cautioned that the scenario of persistent inflation—one officials had repeatedly considered—was materializing, though she did not entirely rule out further rate cuts.

The remarks underscore the deep divisions within the Bank of England over how to tackle inflation that has surged to nearly double its 2% target. The last rate cut in August passed by a narrow majority, and markets see little chance of further action before year-end. Breeden supported the most recent rate cut, while Mann was among the minority who voted to hold rates steady.

U.S. consumer confidence index hits lowest level since April

A report released by the U.S. research organization Conference Board on September 30 showed that the U.S. consumer confidence index for September stood at 94.2, down 3.6 points from August, marking the lowest level since April. Among the index's components, the assessment of current business and job market conditions fell 7 points to 125.4. The consumer expectations index, reflecting short-term income prospects and business and job market conditions, dropped to 73.4—significantly below the critical threshold of 80 that typically signals an impending economic recession.

The report indicates that the proportion of respondents who consider job opportunities “plentiful” has dropped to 26.9%, a decline of over 3 percentage points from August, while the share of those who find “jobs hard to come by” remains steady at 19.1%. Additionally, pessimism about financial conditions has intensified, with perceptions of current financial situations experiencing the largest single-month decline since July 2022.

Stephanie Guichard, a senior economist at the Conference Board, noted that consumers' perceptions of business conditions have become significantly less optimistic compared to recent months, while their assessment of current employment conditions has declined for the ninth consecutive month, reaching a multi-year low. Experts analyze that labor market stability remains a key consideration for Federal Reserve officials as they deliberate on the next course of interest rate policy. The market widely anticipates that the Fed will cut its benchmark interest rate by 0.5 percentage points before year-end.

A record-breaking 150,000 federal employees left their jobs by the end of September

According to multiple media reports, approximately 154,000 U.S. federal government employees have accepted the terms offered by the current administration and will officially resign on September 30. Reuters noted that this means 2025 will see the largest number of government departures since the end of World War II. After Republican President Donald Trump took office in January, he tasked entrepreneur Elon Musk with leading the Office of Government Efficiency to implement large-scale reductions in federal agencies and personnel. The Washington Post reported that approximately 154,000 individuals previously employed across dozens of federal agencies have accepted the federal government's offer to resign voluntarily in exchange for certain financial compensation. Their employment with the federal government will formally terminate on September 30, coinciding with the end of the current fiscal year.

According to data from the U.S. Office of Personnel Management, many employees left their posts months ago and have effectively been on “paid leave” during this period. Reuters reported on the 30th, citing multiple union representatives and government governance experts, that as these employees depart, a significant amount of specialized knowledge and skills will be lost from the U.S. federal government.

Sources: OPEC+ will consider a more substantial increase in oil production

According to two informed sources, OPEC+ may consider increasing oil production by 411,000 barrels per day in November at its Sunday meeting, as rising oil prices prompt the group to seek regaining more market share. OPEC+ has reversed its previous production cut strategy and, under pressure from U.S. President Trump to lower oil prices, has already raised quotas by over 2.5 million barrels per day—about 2.4% of global demand—to boost market share. An additional 411,000-barrel-per-day increase in November would triple October's 137,000-barrel-per-day rise. A third source indicated that the November production increase could reach as high as 500,000 barrels per day, though a final decision has yet to be made.

Australian home prices post biggest monthly gain in two years

Australian home prices posted their strongest monthly gain in nearly two years. With the property market already facing tight supply and falling borrowing costs, the government's expanded incentives for first-time buyers are expected to further boost demand. Property consultancy Cotality reported Wednesday that its Home Value Index rose 0.8% month-on-month in September, marking the largest single-month increase since October 2023. Darwin led monthly gains with a 1.7% increase, followed by Perth and Brisbane at 1.6% and 1.2% respectively. Sydney, a key bellwether market, rose 0.8%, driving the national median house price up 0.9% month-on-month. Currently, both the national Australian house price index and the capital city indices remain at historic highs.

The U.S. government faces imminent shutdown

On Monday local time, talks between U.S. President Donald Trump and congressional leaders from both parties at the White House failed to break the deadlock. The critical negotiations over funding between the two parties in Congress have failed. The federal government's current funding will officially run out at 12:01 a.m. local time on Wednesday (12:01 p.m. Beijing time on Wednesday). If no agreement is reached by then, a government shutdown will be unavoidable, forcing hundreds of thousands of federal employees to take unpaid leave and causing disruptions to public services.

Following the conclusion of negotiations, both sides maintained their hardline stances and engaged in mutual recriminations. The core of the current impasse lies in the fact that despite the Republicans holding a 53-47 majority in the Senate, any spending bill requires at least 60 votes to pass. This means they must secure the support of at least seven Democratic senators.

However, with the gap between the two parties remaining vast, the prospects for reaching a consensus appear dim.

Thune: Vote on reopening government will be held on Wednesday

According to foreign media reports, Senate Republican Leader Thune stated that the Senate will vote on Wednesday on a bill to reopen the federal government. He expressed optimism that support from additional Democrats could break the funding impasse. In a television interview, Thune remarked, “We secured three (Democratic) votes during tonight's vote.” He added that Republicans hope to gain additional votes in the next round of voting. Ultimately, we will secure sufficient votes in the Senate to pass the bill and keep the government running.

Thune blamed the ongoing government shutdown on Democratic leadership, accusing Senate Minority Leader Chuck Schumer, a New York Democrat, of pandering to progressive lawmakers. This was entirely unnecessary. They did it solely to appease the left-wing base and Schumer's own fears.

[Today's Focus]

UTC+8 12:00 The U.S. government faces a shutdown crisis

UTC+8 15:30 ECB Executive Board Member Elderson speaks

UTC+8 17:00 Eurozone September HICP

UTC+8 20:15 U.S. September ADP

UTC+8 22:00 U.S. September ISM Manufacturing PMI

UTC+8 00:15 Richmond Fed President Barkin speaks

UTC+8 01:30 Bank of Canada releases minutes of September monetary policy meeting

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Policy Over Power: DPP Demands Substantive Reform Before Coalition Talks Advance

As Japan’s ruling Liberal Democratic Party (LDP) prepares to elect a new leader this Saturday, the Democratic Party for the People (DPP) a small but potentially decisive political player has signaled clear reluctance to enter a coalition without concrete policy commitments. DPP head Yuichiro Tamaki told Bloomberg that the party would withhold cooperation until the incoming administration demonstrates real action on promised reforms, particularly a cut to gasoline taxes and a higher cap for tax-exempt income.

“There is no way we would immediately join a coalition,” Tamaki declared, pushing back against recent overtures by LDP leadership candidates seeking to expand their parliamentary base. His statement underlines a growing divide between smaller parties' policy priorities and the LDP’s political maneuvering amid weakening dominance in both legislative chambers.

LDP Leadership Contest Prompts Coalition Speculation

With five candidates vying to replace the current LDP leader, speculation has intensified over how the incoming prime minister might reconfigure alliances. Frontrunner Shinjiro Koizumi, known for his measured approach, emphasized that any coalition would have to be built “on trust and policy discussions,” suggesting a longer negotiation horizon. By contrast, contender Sanae Takaichi expressed eagerness to immediately bring new parties into government and hinted that her cabinet could feature members from coalition partners, including the DPP.

Tamaki, however, signaled a firm rejection of that timeline, dismissing the idea of cabinet appointments as an incentive. Instead, he laid down a policy-first condition: "If we believe that our policies can be realized by working with this new administration, only then can we move toward considering more in-depth and broader cooperation and agreements.”

Bank of Japan ETF Policy Also Draws Fire

Beyond political coalition dynamics, Tamaki also used the interview to critique the Bank of Japan’s (BOJ) strategy for unwinding its massive holdings of exchange-traded funds (ETFs). The central bank currently holds more than ¥70 trillion (about $473 billion) in ETFs, accumulated over 15 years as part of its ultra-loose monetary policy.

BOJ Governor Kazuo Ueda recently stated that the selloff would proceed at a pace of ¥620 billion per year implying a century-long divestment plan. Tamaki dismissed this outlook as impractical and called for a swifter timetable. “It shouldn’t take 100 years,” he said. “They should spend 15 years selling what they spent 15 years buying.” His comments reflect a growing sentiment among policymakers who believe that the BOJ’s prolonged market interventions have distorted asset prices and delayed normalization.

As the LDP prepares for a leadership transition, the stance of key opposition figures like Tamaki is shaping the contours of Japan’s next political phase. While some ruling party candidates are eager to forge new coalitions, Tamaki’s firm emphasis on policy delivery over political expediency complicates any immediate realignment. At the same time, his critique of the BOJ’s ETF exit strategy highlights broader concerns about Japan’s post-Abenomics financial path. For now, both in politics and in monetary policy, pragmatism not haste appears to be the DPP’s guiding principle.