Japan could get its first woman prime minister as Sanae Takaichi leads the polls. But it's far from a done deal

With Japan's Prime Minister Shigeru Ishiba expressing his intention to resign, the race to become the country's next leader has been thrown wide open.

Various names have been bandied around to see who would succeed Ishiba, but two prominent names have emerged: former economic security minister Sanae Takaichi and current agriculture minister Shinjiro Koizumi.

Neither has formally announced a run, but political risk consultancy Eurasia Group said both are expected to enter the contest to replace Ishiba.

A Nikkei opinion poll last month showed Takaichi leading with 23% support, while Koizumi had 22%. If elected, Takaichi would be the first woman to helm the world's fourth-largest economy.

When asked if Japan was ready for a female prime minister, Tomohiko Taniguchi, former special adviser to the cabinet under the late Prime Minister Shinzo Abe, told CNBC's "Squawk Box Asia" that voters are more ready for a female leader than many assume.

"It's just about time for Japan to have the first female prime minister, and I think it's in line with the changes that have happened over the last 10, 15 years," he noted, adding that "female labor participation in Japan is bigger in number than it is in the United States."

About 85% of Japanese women aged between 25 and 54 years were working, compared with 78% in the U.S, according to the latest data from the Organization for Economic Cooperation and Development.

Takaichi ran against Ishiba in last year's Liberal Democratic Party leadership race and led in the first round before losing in the runoff.

She later distanced herself from Ishiba's government, not taking up any role in the cabinet and refusing his offer to chair the key LDP General Council.

In a press conference Sunday, Ishiba said that he was resigning to take responsibility for a series of election losses.

His departure comes as Japan faces a cost of living crisis, with rice prices reaching their highest rate of increase in over 50 years in June.

Ishiba also pointed to the completion of a trade deal with the U.S., which set a 15% baseline tariff on all Japanese exports to the U.S., including its auto sector.

"With Japan having signed the trade agreement and the president having signed the executive order, we have passed a key hurdle," Ishiba said, according to Reuters. "I would like to pass the baton to the next generation."

His resignation also ends a short stint that saw the ruling LDP and junior coalition partner Komeito lose their majority in both Japan's upper and lower houses of parliament.

Takaichi is an "apostle of Abenomics", according to Eurasia Group, a reference to the economic policies of Abe, which espoused large-scale monetary policy easing, fiscal spending and structural reforms.

"Investors will closely watch Takaichi's electoral prospects because of her previous pointed criticism of the Bank of Japan's plans to raise interest rates, and her support for larger fiscal stimulus," the note added.

The BOJ ended its negative interest rate regime in March 2024 and most recently kept rates at 0.5%. However, ahead of the LDP leadership contest last October, Takaichi had said that the BOJ's hikes were "too early."

She is also in favor of revising Japan's pacifist constitution, especially Article 9, which renounced Japan's right to wage war.

By contrast, Koizumi has been less outspoken on policy, but the son of former Japanese leader Junichiro Koizumi rose to prominence after taking over as farm minister and managing the rice crisis in Japan.

Jesper Koll, expert director at financial services firm Monex Group said that Takaichi has "strong policy ideas and, more importantly, a strong team of 'enforcers' from within both the LDP and the elite bureaucracy."

While the mainstream LDP may not like her ideas, she scores well among LDP's elite who admire her thoroughness and willingness to engage, argue and get things done, said Koll, who labeled her ideas "radical."

In contrast, Koll said, Koizumi is a safe pair of hands. "Because he is fundamentally vacuous on policy, the LDP old-guard feels confident he won't upstage their entrenched agenda on, for example, agricultural policy or rural vested interest protection."

He could also easily build a compromise with the opposition parties in the lower house to get their support to be the prime minister.

Despite the LDP-Komeito being Japan's governing coalition, the winner of the LDP leadership race may not automatically become prime minister as the Lower House makes the final choice.

Because the LDP lost its majority in the chamber, all the opposition lawmakers could, if united behind a single candidate, choose the next prime minister.

The LDP and Komeito have a combined 220 seats in the 465-seat Lower House. But this scenario is unlikely, Eurasia analysts said, given that the LDP, with its 196 seats, is still the largest voting bloc in the Lower House.