Japanese Prime Minister Shigeru Ishiba apologised on Friday for giving gift certificates to some ruling party lawmakers, a move that could hurt his administration's already low approval ratings and risk delaying passage of next fiscal year's budget.

The political uncertainty could cast doubt on Ishiba's leadership ahead of an upper house election set for July, and comes at a time when Japan's economy faces headwinds from the escalating trade war waged by U.S. President Donald Trump.

"Market volatility is heightening on uncertainty over U.S. and European economic policies. But now, market players may need to look more carefully at domestic political developments," said Yusuke Matsumoto, senior market economist at Mizuho Securities.

Speaking in parliament, Ishiba said he used "pocket money" to hand out gift certificates to 15 lawmakers of the Liberal Democratic Party (LDP) before having dinner with them on March 3 as a "show of appreciation" for their hard work getting elected.

Domestic media reported on Thursday that Ishiba handed gift certificates worth 100,000 yen ($673) each to the lawmakers. When asked by reporters later on Thursday whether he may step down, Ishiba said only that the gifts did not violate any law, according to the Nikkei newspaper.

"My action caused distrust and anger among many people, for which I deeply apologise," Ishiba told parliament on Friday in response to a question by a ruling party lawmaker.

While Ishiba said the move was not illegal as it was a personal gift with no political intentions, it drew criticism even from within the LDP's coalition partner and calls from some opposition parties for him to resign.

The gift issue adds to challenges for Ishiba's minority coalition, which has been forced to make rare amendments to the government's budget plan for the fiscal year beginning in April, to appease opposition parties and ensure its passage through parliament by the March 31 deadline.

Failure to pass the annual budget in time could force the government to compile a stop-gap budget, which will deal a blow to Ishiba's political standing, and hurt the economy by delaying spending plans, some analysts say.

Tetsushi Sakamoto, chairperson of the LDP's diet affairs committee, said on Friday the gift issue could dampen prospects for passing the budget by end-March, Kyodo news agency reported.

Japan will hold an election around July for the upper house, where the ruling coalition's slim majority could also be at risk if Ishiba cannot revive public trust roiled by a previous political issues over unrecorded donations to lawmakers.

A poll by public broadcaster NHK last week showed the Ishiba administration's approval rating stood at 36%, down from 44% in February.

Japan's economy expanded an annualised 2.8% in the final quarter of last year on robust business expenditure and consumption. But analysts polled by Reuters expect growth to slow to a meagre 0.4% as rising living costs and slowing global demand weigh on consumption and exports.

Reuters

Japanese Prime Minister Shigeru Ishiba attends a joint press conference with U.S. President Donald Trump in the East Room at the White House in Washington, U.S., February 7, 2025. REUTERS/Kent Nishimura/File Photo

Japan PM apologises for giving out gifts, clouding budget prospects