Japan Proposes Record Budget While Signaling Fiscal Discipline Amid Inflation Pressures

Economic

Summary:

Japan has unveiled a record $783 billion draft budget for FY2026 under Prime Minister Sanae Takaichi, aiming to stimulate consumption and bolster defense...

Record Spending Meets Tight Debt Controls

The Takaichi administration’s proposed ¥122.3 trillion ($783 billion) budget marks the highest annual spending plan in Japan’s history. However, the fiscal blueprint seeks to strike a delicate balance between economic support and market stability. Finance Minister Satsuki Katayama emphasized that the plan caps new bond issuance below ¥30 trillion for the second consecutive year, with the debt reliance ratio falling to 24.2% the lowest since 1998.

This attempt to reassert fiscal discipline comes in response to rising government bond yields and yen depreciation, both of which have been aggravated by investor fears over unchecked fiscal expansion in a country with the world’s highest debt-to-GDP ratio. The proposal to reduce super-long Japanese Government Bond (JGB) issuance in the next fiscal year further supports the government’s narrative of restraint, helping cool the 30-year JGB yield, which had recently hit a record 3.45%.

Defense, Debt-Servicing and Inflation Push Budget Higher

While the top-line budget figure appears inflationary, much of the increase stems from rising debt-servicing costs and defense outlays rather than new stimulus. Military spending is set to rise 3.8% to ¥9 trillion ($60 billion), aligning with both Takaichi’s nationalist platform and U.S. demands for greater self-reliance from its allies. These components reflect political rather than cyclical spending and highlight the complexity of managing fiscal growth without further pressuring the yen.

The correlation between defense expansion and fiscal tension is evident, as higher spending regardless of its economic multiplier adds to structural debt burdens, potentially challenging the BOJ’s monetary goals.

Monetary Tightening Continues as Inflation Persists

Tokyo’s core consumer price index rose 2.3% year-over-year in December, easing from November’s 2.8% but still above the BOJ’s 2% target. A separate measure excluding both fresh food and fuel a metric closely monitored by the BOJ as a gauge of demand-driven inflation showed a 2.6% rise. The slowdown supports the central bank’s view that inflation may moderate temporarily before reaccelerating on the back of stronger domestic demand.

The BOJ raised interest rates to 0.75% last week, the highest level in 30 years, signaling greater confidence in Japan’s path toward sustained inflation. However, the weak yen pressured by dovish perceptions of BOJ policy may continue to fuel imported inflation and complicate the timing of future hikes.

Analysts warn that further yen declines could prompt firms to resume price hikes, creating sticky, cost-led inflation and necessitating more aggressive BOJ intervention. As a result, the interplay between currency movements and inflation expectations remains a central focus for both fiscal and monetary authorities.

Economic Risks and Political Trade-offs Remain

Although the budget is smaller than some investors feared, political realities may undermine fiscal restraint. Mizuho’s senior economist Saisuke Sakai cautioned that fragmentation in Japan’s political landscape could pressure Takaichi to issue a large supplementary budget in 2026 to secure opposition support. If so, the credibility of current fiscal targets could erode, reigniting market concerns about inflation acceleration and yen depreciation.

Meanwhile, Japan’s industrial production data revealed a 2.6% decline in November, worse than the expected 2.0% drop, driven by cuts in automobile and battery output. This weak manufacturing reading reinforces the need for fiscal support, even as monetary conditions tighten.

Japan’s record budget for 2026 reveals a government attempting to stimulate demand and bolster national defense while maintaining enough restraint to calm bond markets and support the yen. Whether this balance can hold depends on inflation dynamics, the yen’s trajectory, and the political feasibility of sustained fiscal discipline. As the BOJ continues gradual tightening and global financial conditions evolve, Japan’s policy coordination will be tested on both domestic and international fronts.

Source: Reuters

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Gerik

Economic

Commodity

Battery Demand and Geopolitics Push Graphite Back Into U.S. Spotlight

After decades of dormancy, graphite mining in the United States is regaining momentum. Once abandoned in favor of cheaper imports, particularly from China, domestic graphite production is now viewed as strategically vital. The driver is twofold: booming demand from the lithium-ion battery industry and increasing concern over supply chain vulnerabilities amid intensifying U.S.-China trade tensions.

Titan Mining Corp., operating in upstate New York near the Canadian border, is among five active graphite projects in the U.S. The company aims to begin commercial-scale output by 2028 and already produces limited ore under its existing zinc mining permits. Titan expects to eventually supply about 40,000 metric tonnes of graphite concentrate annually approximately half of current U.S. demand for natural graphite.

This revival marks a structural shift in U.S. resource policy, with a direct causal relationship between the strategic role of graphite in energy storage and federal support mechanisms driving domestic investment.

From Pencils to Power Grids: Graphite’s Expanding Industrial Role

Graphite’s value has evolved from its traditional uses in pencils and lubricants to becoming an indispensable component in high-tech and defense applications. Its ability to conduct electricity and withstand extreme heat makes it essential for anodes in lithium-ion batteries, heat-resistant coatings, military-grade lubricants, and energy grid storage systems.

The U.S. Department of Energy has declared graphite a “critical mineral,” while the Department of the Interior includes it among 60 key materials vital to national security and industrial competitiveness. The inclusion of a tax credit for critical mineral production in the 2022 Inflation Reduction Act further reflects Washington’s commitment to securing supplies of materials like graphite.

As battery demand continues to surge, so too does interest in both natural and synthetic graphite. Though synthetic graphite offers higher purity, it is significantly more expensive and energy-intensive to produce, increasing the appeal of reviving natural graphite mining within U.S. borders.

Policy Tailwinds and Federal Support Accelerate Domestic Projects

Titan Mining and other developers are benefiting from a policy environment increasingly tilted toward domestic mineral independence. The Trump administration has reinforced this agenda through trade policies, critical mineral diplomacy, and streamlined permitting. Titan’s New York project, in particular, has been granted fast-tracked permitting status and is eligible for up to $120 million in construction loans and $5.5 million in federal funding for feasibility work.

Other notable U.S. projects include Graphite One Inc. in Alaska home to what may be the largest large-flake graphite deposit in the U.S. and Westwater Resources’ Coosa Deposit in Alabama. All aim to reduce dependence on Chinese graphite exports, which still dominate both the natural and synthetic graphite markets.

China recently imposed export controls on graphite, then eased them temporarily, highlighting the volatility and unpredictability of foreign supply. U.S. strategic planners have interpreted these actions as a warning signal and an opportunity to localize production.

Titan’s Strategic Advantage and Market Readiness

Titan holds a unique position among U.S. projects due to its ability to leverage existing infrastructure from its zinc operations. This allowed the company to begin early-stage graphite mining with limited regulatory delay, while pursuing full-scale permits for expansion. CEO Rita Adiani confirmed strong commercial interest, noting that “100% of the output” could already be contracted in advance, signaling deep market demand.

The company's operations in New York also benefit from proximity to North American auto and battery manufacturing hubs, potentially reducing the carbon footprint and logistical complexity associated with importing graphite from overseas.

The resurgence of U.S. graphite mining marks a significant realignment of industrial policy, shaped by the convergence of clean energy demand, strategic supply chain concerns, and trade competition with China. Projects like Titan’s are not just reviving a dormant industry they are helping build the foundation for America’s energy transition and economic resilience. As global battery demand climbs, graphite’s geopolitical and industrial relevance is only expected to grow, positioning the U.S. for a more self-sufficient future in critical minerals.

Source: AP

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Glendon

Forex

Economic

Thailand's central bank has aggressively acted to ease volatility in the baht the central bank chief said on Friday, with the currency surging to its highest level against the dollar in more than four years.

The baht has gained 10.3% against the dollar so far this year to become Asia's second-best performing currency.

The baht's strength has added to the problems in Southeast Asia's second-largest economy, which has been struggling with US tariffs, high household debt, a border conflict with Cambodia and political uncertainty ahead of elections in early February.

"Although we have intervened heavily in the latter half of the year, our efforts could only mitigate fluctuations," governor Vitai Ratanakorn told reporters.

"We want to reduce volatility. We do not want the baht to strengthen to the point where it hurts exporters and the economy," he said.

The central bank has not set a specific target for the baht's value and cannot manipulate the currency due to international agreements," Vitai said.

The baht's recent strength stems from a weaker dollar, capital inflows and Thailand's higher-than-expected current account surplus, he said.

On Friday, the central bank initiated measures to strengthen scrutiny over capital inflows exceeding US$200,000 (RM808,000), Vitai said, adding that banks were now required to follow stricter review processes.

"This is the first time we are checking the purposes and documentation of such inflows," Vitai said.

The move follows measures to control gold trading, which the central bank has blamed for helping to drive up the baht.

On Friday, the central bank also announced a loan guarantee scheme expected to increase new credit by 100 billion baht (RM13 billion) over the next one to two years.

The scheme, which will begin in January 2026, will offer guarantees for loans of up to 100 million baht for targeted small- and medium-sized businesses, and up to 150 million baht for corporates.

Vitai reiterated that lowering interest rates would not solve structural problems.

Last week, the central bank cut its key interest rate for the fifth time since October 2024, with rates down by a total of 125 basis points over the period.

Source: Theedgemarkets

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Daniel Carter

Political

Russia-Ukraine Conflict

Ukraine's President Volodymyr Zelenskiy said on Friday he planned to meet with U.S. President Donald Trump soon and that a lot could be decided before the New Year as Washington pushes diplomatic efforts to end the war with Russia.

Zelenskiy has said that sensitive issues, including any compromises on territory, should be discussed at the level of heads of state, and Kyiv has been seeking a face-to-face meeting with Trump.

"We have agreed on a meeting at the highest level – with President Trump in the near future. A lot can be decided before the New Year," he said on X following the latest round of talks between Ukrainian and U.S. negotiators.

Zelenskiy held talks on Thursday with Trump's special envoy Steve Witkoff and the president's son-in-law Jared Kushner.

He said that some documents, part of a wider framework aimed at ending the conflict and ensuring Ukraine's reconstruction, were "nearly ready" while others were "fully prepared".

Earlier this week, Zelenskiy unveiled a 20-point draft peace plan that he described as the main framework for ending the war.

While the plan outlined Ukraine receiving security guarantees to prevent further Russian aggression, there was no compromise between Ukraine and the U.S. on the issues of territory, which Moscow is demanding Kyiv cede.

Control over the occupied Zaporizhzhia nuclear power plant also remained the matter of further discussion.

Source: Reuters

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Justin

Political

Economic

Separatists in southern Yemen accused Saudi Arabia on Friday of targeting their forces with airstrikes, something not immediately acknowledged by the kingdom after it warned the force to withdraw from governorates it recently took over.

The Southern Transitional Council said the strikes happened in Yemen’s Hadramout governorate. It wasn’t immediately clear if there were any injuries from the strikes.

The Council’s satellite channel AIC aired what appeared to be mobile phone footage it described as showing the strikes. In one video, a man speaking could be heard blaming the strike on Saudi aircraft.

Officials in Saudi Arabia did not immediately respond to a request for comment from The Associated Press. On Thursday, the kingdom called on Emirati-backed separatists in southern Yemen to withdraw from the two new governorates they now control, a move that has threatened to spark a confrontation within a fragile coalition that has been battling the Iran-backed Houthi rebels in the country’s north for a decade.

Source：AP News

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Gerik

Economic

Commodity

Silver Tops $75, Outpaces Gold and Platinum in 2025 Performance

Spot silver soared 3.6% to $74.56 per ounce during early trading in Asia, after touching a new record high of $75.14. The white metal has now gained 158% year-to-date, eclipsing gold’s 72% rise and outpacing sister metals platinum and palladium, which are up approximately 165% and over 90%, respectively. The speed and scale of silver’s climb signal both a speculative influx and a shift in long-term investor positioning.

The current rally is not merely correlated with general market momentum but is being causally driven by a combination of factors: structural supply deficits, its designation as a U.S. critical mineral, and accelerating demand from the green energy and electronics sectors.

Fed Policy Outlook and Dollar Weakness Fuel Momentum

Traders are increasingly pricing in at least two interest rate cuts by the U.S. Federal Reserve in 2026, creating a favorable macroeconomic backdrop for non-yielding assets like silver and gold. A weaker U.S. dollar and expectations of prolonged monetary easing have added further fuel to the metal’s upward trajectory.

According to OANDA senior analyst Kelvin Wong, speculative and momentum-driven investors have been a key force behind the rally since early December. Thin holiday trading volumes have amplified price movements, while fear-of-missing-out (FOMO) sentiment has drawn more capital into silver and other precious metals.

Analysts Eye Silver at $90 and Gold at $5,000 in H1 2026

Looking ahead, analysts forecast further upside. Wong suggests that silver could reach $90 per ounce and gold may touch $5,000 in the first half of 2026. These projections reflect not only monetary policy dynamics but also sustained investor skepticism toward overvalued equities and potential financial market instability.

Silver’s dual role as both a monetary and industrial asset enhances its strategic appeal. While gold is largely driven by central bank purchases and geopolitical hedging, silver benefits from rising demand in solar panels, battery technologies, and 5G infrastructure, adding a strong fundamental underpinning to its recent price action.

Platinum and Palladium Also Rally on Supply Constraints

Platinum surged 7.8% to $2,393.40 per ounce, after hitting an all-time high of $2,429.98. Palladium climbed 5.2% to $1,771.14, extending its rally after a three-year high earlier this week. Both metals are being supported by a combination of tightening supply, tariff-related uncertainties, and capital rotation from gold into undervalued precious metals.

Jigar Trivedi, senior research analyst at Reliance Securities, noted that U.S. stockpiling and sanctions-related concerns have added further upside pressure to platinum. As with silver, speculative activity and geopolitical uncertainty are compounding underlying supply-demand imbalances.

Silver’s breakthrough above $75 represents more than just a technical milestone it is the culmination of macroeconomic trends, industrial demand expansion, and speculative momentum. With all major precious metals posting record or near-record highs, and rate cut expectations firmly embedded in investor pricing models, the market’s shift into hard assets appears durable. As 2026 approaches, silver may continue to lead the charge in a commodities cycle defined by inflation hedging, policy divergence, and structural resource scarcity.

Source: Reuters

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Daniel Carter

Political

Pakistan has reached an agreement worth more than $4 billion to supply conventional weapons to military authorities in control of the eastern part of Libya, making it potentially the South Asian country's biggest defense export deal ever.

It was finalized last week when Field Marshal Asim Munir, Pakistan's chief of Defense Forces, paid an official visit to Benghazi in Libya.

The deal, however, may face potential hurdles due to United Nations sanctions on the North African country.

Libya is currently governed through a fragmented power arrangement. In the west, the U.N.-recognized Government of National Unity in Tripoli runs the government. In the east, territorial control rests with the Libyan National Army, with headquarters in Benghazi. Libya, including the two territories, has been subject to a U.N. arms embargo since 2011, requiring approval from the global body for transfers of weapons and related material.

According to the agreement, Pakistan will sell over two dozen jets -- including JF-17 fighter jets, a multi-role combat aircraft jointly developed by Pakistan and China -- and 12 Super Mushak trainer aircraft used for basic pilot training to Libya, among other equipment, over the course of three years, two government officials familiar with the development told Nikkei Asia on condition of anonymity.

Spokespersons for Pakistan's Ministry of Foreign Affairs and military mouthpiece Inter Services Public Relations did not respond to Nikkei's requests for comment.

Experts said that Islamabad's renewed confidence, after May's conflict with India, helped secure the agreement.

In three days of fighting, Pakistan shot down Indian fighter jets, a point that has repeatedly been mentioned by U.S. President Donald Trump.

"Pakistan's performance in May has certainly bolstered its confidence and shown how skillful the Pakistan Air Force is and how well-made Chinese weapons are, especially the JF-17s," Sahar Khan, an independent national security analyst based in Washington, DC, told Nikkei.

Qamar Cheema, executive director of the Sanober Institute, an Islamabad-based think tank, says the combat paved the way for the Libya deal. "Pakistan wants to emerge as a supplier of conventional weapons, and in this context, the post-May military posture helps a lot," he said.

Bilal Zubair, director of research at the Center for International Strategic Studies (CISS) in Islamabad, looks to other recent defense-related deals that the country concluded after the brief conflict with India. "Pakistan's fighter jet exports to Azerbaijan, a defense agreement with Saudi (Arabia) and high-level defense talks with Qatar show Pakistan's defense clout expanding beyond South Asia," he said.

As for the U.N. arms embargo, Cheema said that it is in reality largely a paper one. "Many countries are already supplying military hardware and maintain strong diplomatic and military ties with the Libyan National Army," he told Nikkei.

Khan, on the other hand, said that despite its ineffectiveness, the proscription can still create legal problems. "The embargo increases the likelihood of delays. Pakistan risks getting slapped with secondary sanctions if the U.N. views the arms deal as a direct violation of the embargo," she said.

According to the Stockholm International Peace Research Institute (SIPRI), Pakistan's combined major arms sales from 2021 to 2024 amount to $64 million. If realized, the $4 billion arms deal with Libya would be an unprecedented achievement for Pakistan's defense industry.

Cheema said that defense exports are not only a security matter but also an economic strategy. "Becoming a conventional arms supplier is a way to boost Pakistan's defense exports and generate much-needed foreign exchange," he said.

Zubair, from CISS, said that Pakistan has not just arms but also infrastructure and expertise in training foreign military forces. "This attracts the procurement of Pakistan's military hardware," he said.