BOJ Must Ensure Fiscal Considerations Don't Overtake Mandate, Deputy Governor Says

Summary:

The Bank of Japan should make clear it is not monetising government debt by ensuring that fiscal considerations do not take precedence over its goal of achieving price stability, Deputy Governor Shinichi Uchida said on Saturday.

Central banks can theoretically print unlimited amounts of money and completely finance government debt, which poses delicate questions around their huge government bond purchases conducted to revive their economies, Uchida said.

Central banks see "monetising," or directly financing government deficits, as taboo, as doing so risks letting inflation get out of control and potentially eroding their independence.

Such unconventional monetary easing steps taken since the 2008 financial crisis present a challenge for central banks across the globe, he said in a speech.

The BOJ's monetary easing, for its part, was aimed at achieving its 2% inflation target, and not at funding government debt, Uchida said.

"In considering what constitutes monetary financing or not, the important question is whether monetary policy is compromised by fiscal considerations," Uchida said.

In deploying and rolling back monetary easing, the BOJ must focus on achieving its economic and price mandate. "The result must be that the Bank does not deviate from such policy conduct out of fiscal considerations," he said.

"In its future conduct of monetary policy, the Bank should make it clear that it is not engaging in monetary financing."

The remarks come against the backdrop of growing pressure from opposition and ruling parties on Prime Minister Shigeru Ishiba to increase budget spending ahead of an upper house election due next month.

Some analysts have blamed concerns over Japan's worsening finances for pushing up super-long bond yields to record highs last month, and complicating the BOJ's efforts to taper its huge bond purchases.

Under a radical monetary easing programme deployed in 2013, the BOJ increased purchases of government bonds and adopted a policy of capping long-term interest rates around zero.

While the BOJ ended the policy last year, its short-term policy rate is still at 0.5%. The central bank plans to lay out in June a new bond tapering plan for fiscal 2026 and beyond as part of its effort to normalise monetary policy.

Source: Reuters

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Oliver Scott

Key points:

● Sides look to get Geneva pact back on track

● Inclusion of Lutnick signals importance of rare earths, export controls

● Geneva deal had fostered latest leg of global relief rally in stocks

Top U.S. and Chinese officials will sit down in London on Monday for talks aimed at defusing the high-stakes trade dispute between the two superpowers that has widened in recent weeks beyond tit-for-tat tariffs to export controls over goods and components critical to global supply chains.

At a still-undisclosed venue in London, the two sides will try to get back on track with a preliminary agreement struck last month in Geneva that had briefly lowered the temperature between Washington and Beijing and fostered relief among investors battered for months by U.S. President Donald Trump's cascade of tariff orders since his return to the White House in January.

"The next round of trade talks between the U.S. and China will be held in the UK on Monday," a UK government spokesperson said on Sunday. "We are a nation that champions free trade and have always been clear that a trade war is in nobody’s interests, so we welcome these talks."

Gathering there will be a U.S. delegation led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer, and a Chinese contingent helmed by Vice Premier He Lifeng.

The second-round of meetings comes four days after Trump and Chinese leader Xi Jinping spoke by phone, their first direct interaction since Trump's January 20 inauguration.

During the more than one-hour-long call, Xi told Trump to back down from trade measures that roiled the global economy and warned him against threatening steps on Taiwan, according to a Chinese government summary.

But Trump said on social media the talks focused primarily on trade led to "a very positive conclusion," setting the stage for Monday's meeting in London.

The next day, Trump said Xi had agreed to resume shipments to the U.S. of rare earths minerals and magnets. China's decision in April to suspend exports of a wide range of critical minerals and magnets upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world.

That had become a particular pain point for the U.S. in the weeks after the two sides had struck a preliminary rapprochement in talks held in Switzerland.

There, both had agreed to reduce steep import taxes on each other's goods that had had the effect of erecting a trade embargo between the world's No. 1 and 2 economies, but U.S. officials in recent weeks accused China of slow-walking on its commitments, particularly around rare earths shipments.

"We want China and the United States to continue moving forward with the agreement that was struck in Geneva," White House spokeswoman Karoline Leavitt told the Fox News program "Sunday Morning Futures” on Sunday. "The administration has been monitoring China's compliance with the deal, and we hope that this will move forward to have more comprehensive trade talks."

The inclusion at the London talks of Lutnick, whose agency oversees export controls for the U.S., is one indication of how central the issue has become for both sides. Lutnick did not attend the Geneva talks, at which the countries struck a 90-day deal to roll back some of the triple-digit tariffs they had placed on each other since Trump's inauguration.

That preliminary deal sparked a global relief rally in stock markets, and U.S. indexes that had been in or near bear market levels have recouped the lion's share of their losses.

The S&P 500 Index, which at its lowest point in early April was down nearly 18% after Trump unveiled his sweeping "Liberation Day" tariffs on goods from across the globe, is now only about 2% below its record high from mid-February. The final third of that rally followed the U.S.-China truce struck in Geneva.

Still, that temporary deal did not address broader concerns that strain the bilateral relationship, from the illicit fentanyl trade to the status of democratically governed Taiwan and U.S. complaints about China's state-dominated, export-driven economic model.

While the UK government will provide a venue for Monday's discussions, it will not be party to them but will have separate talks later in the week with the Chinese delegation.

Source: Reuters

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Nathaniel Wright

Japan’s economy contracted slightly less than initially estimated in the first quarter amid stagnant consumer spending and falling exports due to tariff-induced trade woes.

Gross domestic product fell 0.2% year-on-year in the three months to March 31, better than preliminary estimates of a 0.7% drop, government data showed on Monday. However, the reading marked a sharp reversal from the 2.4% growth recorded in the previous quarter.

Quarter-on-quarter GDP growth was flat, compared to an initial estimate of 0.2% contraction.

The slightly better-than-expected GDP print was driven chiefly by the private consumption being revised upward to show 0.1% q-o-q growth, compared to earlier estimates of a flat reading.

However, growth in capital expenditures was revised down to 1.1% q-o-q from 1.4%. External demand fell 0.8%, in line with the initial forecast.

The reading pointed to weakness in Japanese exports during the quarter, amid uncertainty over U.S. trade tariffs and weakening demand in major markets such as China.

Although trade talks between Japan and the U.S. are ongoing, President Donald Trump enacted his tariff agenda in the latter part of the quarter, having imposed a universal 10% tariff on all imports, as well as steep levies on foreign automobiles and select commodities.

A strong yen also weighed on exports, as a hawkish Bank of Japan and increased safe-haven demand boosted the currency.

The reading indicated that the Japanese economy was cooling after a moderately strong 2024. Softer domestic growth is likely to give the BOJ less headroom to raise interest rates.

Source: Investing

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Olivia Brooks

Political

Republicans and Democrats traded barbs on Sunday after President Donald Trump deployed the National Guard to Los Angeles amid massive protests against increasing and divisive immigration raids.

"Important to remember that Trump isn't trying to heal or keep the peace. He is looking to inflame and divide," Democratic Senator Chris Murphy said in one of the most direct rebukes.

"His movement doesn't believe in democracy or protest - and if they get a chance to end the rule of law they will take it."

Democratic Senator Cory Booker condemned Trump for deploying troops without California's approval, warning it would only escalate tensions. On NBC's "Meet the Press" he accused Trump of hypocrisy, and noted the president's inaction on January 6, 2021 when thousands of his supporters raided the U.S. Capitol and his subsequent pardons for those arrested.

Footage showed at least a half dozen military-style vehicles and riot shields on Sunday at the federal building in Los Angeles with federal law enforcement firing gas canisters to disperse demonstrators protesting against the ICE crackdown.

California Governor Gavin Newsom and Trump sparred over the protests, with Newsom condemning the federal response as an overreach, saying Trump wants "a spectacle," while the president accused Newsom of failing to maintain order.

Republican House Speaker Mike Johnson on Sunday defended Trump's decision and said he had no concern about the National Guard deployment, adding, "One of our core principles is maintaining peace through strength. We do that in foreign affairs and domestic affairs as well. I don't think that's heavy handed."

Republican Senator James Lankford said Trump is trying to de-escalate tensions, pointing to scenes of protesters throwing objects at law enforcement.

He recalled similar unrest in 2020 in Seattle and Portland, where National Guard backed local law enforcement amid racial justice protests.

The protests against the raids have become the latest focal point in a national debate over immigration, protest rights, and the use of federal force in domestic affairs. It also has fueled discussion on the boundaries of presidential power and the public's right to dissent.

Source: Reuters

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Gerik

Economic

Clear Verdict from the United States Bolsters International Standing

Vietnam has received strong validation from the United States in the latest June 2025 Treasury report on macroeconomic and foreign exchange policies. Despite meeting two out of three monitoring criteria under the Trade Facilitation and Trade Enforcement Act of 2015—including a significant bilateral trade surplus with the US and a current account surplus—Vietnam was found not to engage in one-sided foreign exchange interventions to artificially weaken the dong (VND). The report’s conclusion helps reinforce Vietnam’s international reputation for financial transparency and integrity.

Sustained Trade Surplus and Healthy Current Account

Vietnam’s bilateral trade surplus with the US reached $122 billion in 2024, ranking third globally and marking an 18.1% increase from the previous year. This performance was driven largely by exports of machinery, electronics, and textiles. At the same time, the country maintained a current account surplus equivalent to 6.1% of GDP. These figures highlight Vietnam’s strong role in global supply chains and underline its export-driven economic resilience.

According to the US Treasury, Vietnam’s bilateral surplus now accounts for 33.6% of total trade between the two nations—well above the $15 billion threshold that signals monitoring concern. Yet, no evidence was found of consistent, one-directional forex intervention aimed at gaining unfair trade advantage. This affirms Vietnam’s compliance with international monetary norms and enhances its policy credibility.

Robust Foreign Exchange Reserves Offer a Financial Buffer

Vietnam’s foreign exchange reserves were reported at $81.2 billion, amounting to 18% of GDP and exceeding short-term external debt by a factor of 3.18. This far surpasses the 100–150% adequacy ratio set by the IMF’s Assessing Reserve Adequacy (ARA) metric, demonstrating a strong financial buffer against external volatility.

Such reserve strength provides Vietnam with significant capacity to manage capital outflows and mitigate exchange rate pressure in turbulent markets. It also signals macroeconomic stability, which is essential for sustaining investor confidence and supporting long-term growth.

Decline in One-Sided Interventions Reflects Policy Maturity

The report acknowledged that the State Bank of Vietnam has significantly reduced one-directional forex interventions since 2022. This behavior reflects a commitment to market-based currency management and compliance with international best practices. By avoiding manipulative devaluations, Vietnam positions itself as a responsible participant in the global financial system, reinforcing its credibility with foreign investors and trading partners.

In 2024, the Vietnamese dong depreciated by 4.5% against the US dollar, yet appreciated by 0.8% on a nominal effective exchange rate basis and by 0.6% on a real effective exchange rate basis. These trends demonstrate that currency movements were largely consistent with market fundamentals rather than the result of deliberate intervention. The report emphasized that VND/USD exchange rate volatility remained subdued in early 2025, and currency trends were shaped more by global financial pressures than by domestic policy choices.

Vietnam’s transparent and flexible exchange rate approach ensures that its macroeconomic tools are aligned with broader stability goals rather than short-term trade advantages. The moderate depreciation of 2.4% in the first four months of 2025 also suggests a responsive but non-disruptive monetary stance.

Reinforcing Vietnam’s Position as a Trusted Global Partner

With a combination of solid trade performance, a current account surplus, disciplined exchange rate management, and ample reserves, Vietnam has cemented its status as a trustworthy and resilient player in international finance. The US Treasury’s clear affirmation that Vietnam is not manipulating its currency is not only a diplomatic success but also a strategic economic advantage.

This position allows Vietnam to remain an attractive destination for foreign direct investment and enhances its role in global production networks. It also enables the country to navigate global uncertainty with a high degree of macroeconomic flexibility, reinforcing its upward trajectory in international financial rankings.

By staying the course on policy transparency and avoiding short-term interventions, Vietnam is building the financial credibility necessary for long-term, sustainable growth. The US recognition reaffirms Vietnam’s reliability as a trade partner and lays the groundwork for deeper bilateral cooperation and stronger integration into the global economic architecture.

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

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Gerik

Economic

Unmasking the Discrepancy Between Official and Actual Employment Figures

In April 2025, the U.S. Bureau of Labor Statistics (BLS) reported a low official unemployment rate of 4.2%, accompanied by the creation of 177,000 new jobs. While this would typically be seen as a sign of economic health, a separate report from the Ludwig Institute for Shared Economic Prosperity (LISEP) reveals a sharply contrasting reality. According to LISEP’s analysis, 24.3% of working-age Americans are experiencing "functional unemployment," a condition that includes not only the jobless but also those underemployed or earning below a basic living threshold.

Rethinking the Definition of Employment

The divergence between official statistics and the figures reported by LISEP stems from fundamental differences in how employment is defined. The BLS limits its unemployment calculations to individuals who are actively seeking full-time work and currently not employed. In contrast, LISEP applies a broader and arguably more realistic criterion. Individuals working involuntarily in part-time roles or earning less than $25,000 annually before taxes—regardless of their employment status—are included under the label of functionally unemployed.

This methodological variation does not merely represent a theoretical disagreement; it reflects a more nuanced understanding of labor market conditions. Many Americans technically counted as employed by government metrics are in fact financially insecure and unable to sustain a basic standard of living. Thus, employment in itself does not necessarily correlate with economic security or mobility.

The Hidden Labor Divide

The LISEP report also highlights critical disparities in how different demographic groups are affected. Functional unemployment is particularly acute among African American and Hispanic communities, as well as among women. These patterns suggest persistent structural inequalities in access to stable and adequately compensated employment. The correlation between racial and gender identity and employment outcomes in this context may stem from limited access to higher education, systemic discrimination, and uneven job market participation.

Although causality is complex, these patterns reveal the disproportionate burden of insecure labor conditions carried by marginalized communities. Without targeted interventions, these gaps may widen, deepening existing socioeconomic divides.

A Question of Policy and Perspective

Gene Ludwig, chair of LISEP and a former U.S. Comptroller of the Currency, warns that relying solely on official labor statistics could misguide economic policy decisions. If policymakers continue to base strategic planning on data that underrepresents the scope of economic hardship, programs intended to stimulate employment or reduce poverty may fail to reach those in need. Ludwig advocates for an evidence-based policy framework anchored in comprehensive metrics that capture the full picture of labor market distress.

His argument implies that the persistence of low-wage, precarious jobs undermines the notion of recovery even during periods of growth. Therefore, sustainable economic development should prioritize not just job quantity but also job quality and wage adequacy.

Towards a More Honest Economic Narrative

The stark contrast between official unemployment figures and the "functional unemployment" rate calls into question the effectiveness of current labor market indicators. While the U.S. economy may appear resilient on the surface, a significant portion of the population remains financially vulnerable. Recognizing and addressing these hidden realities is crucial for building inclusive economic policies that ensure prosperity extends beyond headline statistics. Moving forward, reframing how employment is defined could be the first step toward a more equitable and transparent labor strategy.

Source: Yahoo Finance

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Gerik

Economic

China–U.S. Trade War

Resilience Over Retreat: U.S. Businesses Endure in China

Even as U.S. tariffs on Chinese goods spike to as high as 145%, American firms are showing notable resilience. According to a survey conducted by the American Chamber of Commerce in China (AmCham China) between May 23 and 28, only 13% of the 112 participating companies indicated intentions to relocate production outside of China in response to tariff hikes. More strikingly, not a single respondent reported plans to repatriate manufacturing back to the U.S., highlighting the complexity and stickiness of global supply chains.

Instead of exiting, 21% of respondents said they would increase manufacturing and sales operations within China itself, a strategic pivot aimed at localizing supply and insulating operations from tariff-related cross-border frictions. Meanwhile, 41% of companies signaled no major adjustments to their existing China strategies.

Business Continuity in the Face of Trade Pressure

These findings underscore that for many American firms, China remains too critical a market to abandon. From giants like Microsoft and Coca-Cola to smaller enterprises with sub-$1 million global revenue, companies see long-term value in maintaining their Chinese footprint, despite near-term headwinds. For multinationals, China offers not only a vast consumer base but also a deeply integrated manufacturing ecosystem that cannot be easily replicated elsewhere.

Nonetheless, the trade environment remains harsh. Nearly one-third of surveyed companies reported losses tied to elevated tariffs during April and early May. Around 11% experienced contract cancellations or order withdrawals from Chinese partners following the enforcement of new tariffs on April 2. An additional 7% indicated they were actively considering shutting down operations in China due to mounting financial strain.

No Rush to Reshoring: Cost and Complexity a Barrier

The absence of any firm intending to shift production back to the U.S. reveals the structural challenges in reshoring. American production remains significantly more expensive in terms of labor, infrastructure, and regulatory compliance. Moreover, the ecosystem of suppliers, logistics providers, and skilled labor that Chinese industrial zones offer cannot be easily replicated domestically in the short term.

This reality tempers expectations about "decoupling" and illustrates why even punitive tariffs may not lead to mass exits from China. Instead, companies appear more inclined to adapt locally—through supply chain localization, pricing strategies, or absorbing costs—rather than undertake disruptive and expensive relocation strategies.

Trade Truce Offers Temporary Relief, Not Resolution

The 90-day temporary trade truce announced in Geneva at the end of May provides a critical window of stability. The follow-up phone call on June 5 between Presidents Donald Trump and Xi Jinping confirmed both sides’ commitment to resume negotiations. While the ceasefire may ease short-term uncertainty, companies remain cautious, aware that underlying tensions have not been resolved.

U.S. Trade Envoy David Perdue’s outreach to American firms in China reflects Washington’s dual approach: maintain political toughness while reassuring businesses of continued support. Perdue’s comments signal a willingness to find pragmatic middle ground, even as geopolitical rivalry persists.

Despite tariffs soaring to triple-digit percentages, the majority of U.S. businesses in China are staying put. Their response reveals a rational calculus: China’s importance as a consumer and production hub outweighs even aggressive trade headwinds. Rather than trigger an exodus, the trade war is prompting strategic recalibrations—localized operations, cost absorption, and supply chain restructuring—while firms continue to lobby for long-term stability. The coming months of resumed U.S.-China negotiations will be critical in determining whether this resilience translates into recovery or further risk.