Japan's Fiscal Policy Risks 'Truss Shock' Selloff

A second round of trilateral talks between Russia, Ukraine, and the United States is scheduled for February 1 in Abu Dhabi, according to Kremlin spokesman Dmitry Peskov. Russia's participation marks a significant policy shift, bringing the US directly into negotiations.

While details from the first round remain scarce, public statements and recent reports offer crucial clues into the high-stakes discussions. Here are five critical insights into the evolving diplomatic landscape.

Figure 1: Officials gather for trilateral talks in Abu Dhabi, a diplomatic format that signals a major policy shift for Russia.

Donetsk: The Final Sticking Point?

Territory appears to be the central unresolved issue. On the eve of the initial talks, top Putin aide Yuri Ushakov stated that a lasting settlement was unlikely without addressing the territorial issue based on a previously agreed-upon formula.

This was echoed last week by US Secretary of State Marco Rubio, who told the Senate Foreign Relations Committee, "The one remaining item … is the territorial claim on Donetsk." This lends credibility to earlier reports that Russia is demanding Ukraine's withdrawal from Donbass.

A Post-Conflict NATO Deployment Is on the Table

Discussions are also underway regarding post-conflict security arrangements. Rubio revealed that "security guarantees basically involve the deployment of a handful of European troops, primarily French and the UK, and then a US backstop," a move that would require Russia's consent.

However, the US is still debating its commitment to a potential future conflict. This follows earlier signals from Steve Witkoff and Jared Kushner indicating American support for NATO troops in Ukraine. This topic will likely be a key focus in the upcoming second round of negotiations.

The Potential 'Quid Pro Quo' for Peace

A potential trade-off may be emerging. According to the Financial Times, US security guarantees for Ukraine are contingent on its withdrawal from Donbass. The New York Times adds that the Kiev-controlled portion of the region could become a demilitarized zone or host neutral peacekeepers.

This suggests a possible deal: Ukraine cedes control of Donbass in exchange for US security guarantees and a NATO military presence. Russia might agree to such terms if neutral peacekeepers serve as a buffer.

Trump's Cautious Approach to Pressuring Zelensky

Despite the promise of this potential arrangement, Ukrainian President Zelensky remains defiant about withdrawing from Donbass. For his part, President Trump has avoided publicly pressuring Zelensky with tangible consequences, such as halting arms sales to the EU destined for Ukraine.

This suggests there are clear limits to how far the United States is willing to go to secure a deal, even as it facilitates the talks.

Why Russia Agreed to US Involvement

Despite these limitations, the US diplomatic role has become indispensable. Russia's agreement to expand bilateral talks with Ukraine into a trilateral format is a major change in its foreign policy. This indicates that Moscow believes Washington is sincere in its efforts to negotiate an agreement, even if it won't use all its leverage.

With the US now formally at the table, the talks are unlikely to revert to a bilateral format unless the conflict is still ongoing by the time of a potential Trump 2.0 administration.

Overall, these developments suggest that President Putin may be considering significant compromises on the maximum goals set at the beginning of the special operation. While it is too early to draw definitive conclusions, any official agreement—whether a ceasefire, armistice, or peace treaty—will be heavily analyzed to understand the strategic calculations behind Russia's evolving position.

South Korea's exports surged in January, accelerating to their fastest pace in over four years and marking eight straight months of growth. Official data released Sunday shows that a global boom in demand for artificial intelligence servers has ignited semiconductor sales, positioning the country as a key bellwether for global trade.

January Trade Data at a Glance

Exports from Asia's fourth-largest economy jumped 33.9% year-over-year in January, reaching a total of US$65.85 billion. This performance significantly outpaced the 29.9% increase forecast by economists in a Reuters poll.

Imports also grew, rising 11.7% from the previous year to US$57.11 billion.

Semiconductor Sales Double on AI Demand

The semiconductor sector was the standout performer, with exports more than doubling by 102.7% compared to a year earlier. According to the trade ministry, this rally is fueled by consistently high demand for AI servers, which has sustained the rise in memory chip prices that began last year.

Market analysts expect this trend to hold. "The surge in chip sales is expected to continue for the time being due to factors such as soaring semiconductor prices and supply shortages," said Park Sang-hyun, an analyst at iM Securities. He also noted that January's strong performance was partly supported by having more working days compared to the same month last year.

Growth Is Broad-Based Across Sectors

The export growth was not limited to technology. Of South Korea's 15 primary export categories, 13 recorded an increase in sales. Key sectors showing strength included:

• Chips

• Cars

• Petrochemical products

• Steel

• Computers

Geographically, exports to China saw the most dramatic growth, jumping 46.7% year-over-year. Shipments to the United States increased by 29.5%, while exports to the European Union grew by 6.9%.

"It is positive that major items such as semiconductors and automobiles, as well as promising items such as consumer goods, showed even growth," said industry minister Kim Jung-kwan in a press statement.

US Trade Policy and Protectionism Loom as Risks

Despite the strong performance, officials remain cautious about the global economic outlook. "Uncertainty in the trade environment has increased due to the US tariff policy and the spread of protectionism," Minister Kim warned.

His comments follow US President Donald Trump's announcement to raise tariffs. Kim stated on Saturday that South Korea requires further discussions with the United States regarding a trade deal reached last year, after holding two days of talks with his American counterpart through Friday.

The last major nuclear arms treaty between the United States and Russia is set to expire this Thursday, threatening to dismantle decades of agreements designed to prevent nuclear conflict. Without a last-minute deal, the New START treaty will dissolve, removing critical restrictions on the world's two largest nuclear arsenals.

The treaty's potential demise reflects President Donald Trump’s "America First" approach to international agreements. However, the current standoff appears driven more by political inertia than a deliberate strategy to end the accord.

A Missed Opportunity for Trump and Putin?

Russian President Vladimir Putin proposed a one-year extension of New START back in September. When asked about the offer, President Trump told a reporter it "sounds like a good idea to me" before boarding his helicopter. Since then, there has been little public progress.

Dmitry Medvedev, who signed the treaty in 2010 as Russia’s president alongside Barack Obama, stated in a recent interview that Moscow has received no "substantive reaction" from Washington but was still giving the Trump administration time to act.

Jon Wolfsthal, director of global risk at the Federation of American Scientists, argued that Trump and Putin could have secured an extension with a simple phone call. "This is a piece of low-hanging fruit that the Trump administration should have seized months ago," he said. The potential failure to renew New START was a key factor in the decision to move the symbolic "Doomsday Clock" closer to midnight.

The China Factor: A Sticking Point for Washington

A White House official, speaking anonymously, confirmed that Trump wants to establish "limits on nuclear weapons and involve China in arms control talks." The official noted that the president "will clarify on his own timeline" how to achieve this.

During his first term, Trump also insisted that China—a rapidly growing nuclear power, though with a much smaller arsenal than the US or Russia—be included in any new treaty. This demand was highlighted when a US negotiator placed an empty chair with a Chinese flag at the negotiating table.

Expert Warnings and a Stalled Process

Analysts suggest the Trump administration's unconventional structure has hindered complex negotiations. Daryl Kimball, executive director of the Arms Control Association, noted that by sidelining career diplomats, the decision-making process has been limited to a small inner circle.

"Trump seems to have the right instinct on this issue but has thus far failed to follow through with a coherent strategy," Kimball said.

The treaty imposes a cap of 1,550 deployed strategic nuclear warheads for both the US and Russia, a nearly 30% reduction from a 2002 limit. It also restricts launchers and heavy bombers to 800 each—an arsenal still large enough to cause global devastation.

How Moscow Views the Treaty's End

Some Russian military analysts believe the treaty has already lost its relevance. "It's clear that the treaty has reached its end," said Alexander Khramchikhin, describing its potential expiration as the disappearance of an "empty formality."

Vassily Kashin, director of Moscow's Center for Comprehensive European and International Studies, suggested Russia will adopt a wait-and-see approach. If the United States begins to expand its nuclear arsenal, Moscow will respond. "But if the Americans don't take any drastic measures... Russia will most likely simply wait, observe and remain silent," he said.

A Precarious Future for Global Arms Control

The New START treaty was previously extended in 2021, when President Joe Biden took office and quickly agreed to a five-year renewal, pushing its expiration to 2026. However, relations deteriorated following Russia's invasion of Ukraine, and in 2023, Russia suspended a key provision of the treaty that allowed for mutual inspections.

Despite the current tensions, Trump has renewed diplomatic engagement with Russia, inviting Putin to a summit and attempting to broker a deal in Ukraine.

Beyond the US and Russia, other nations possess nuclear weapons, including US allies France and Britain, as well as India, Pakistan, Israel, and North Korea. These countries are not part of existing international arms control agreements.

U.S. President Donald Trump announced Saturday that India has agreed to purchase Venezuelan oil, a move intended to steer New Delhi away from Iranian crude.

Speaking to reporters aboard Air Force One, Trump confirmed the arrangement, stating, "We've already made that deal, the concept of the deal."

A Strategic Move to Isolate Russia

This development follows reports that the United States had encouraged India to resume Venezuelan oil purchases. According to three sources familiar with the matter, the proposal was framed as a way for India to find an alternative to its imports of Russian oil.

The strategic goal for Washington is to curtail the oil revenue that is financing Russia's ongoing war in Ukraine.

Reversing Course on Trade Policy

The new arrangement marks a significant policy shift. In March of the previous year, the Trump administration had imposed 25% tariffs on countries buying Venezuelan oil, a policy that directly affected India.

An Open Invitation to China

In his remarks, President Trump also extended a similar offer to another major global energy consumer. He noted that China was also welcome to make a deal with the U.S. to buy oil from Venezuela.

India's Finance Minister Nirmala Sitharaman is preparing to unveil the nation's annual budget.

As India prepares for its annual budget announcement this Sunday, Finance Minister Nirmala Sitharaman faces a series of competing demands. The Defence Ministry is pushing for a significant spending increase, industry groups are urging tax cuts, and the government is planning to relax rules on foreign investment.

The upcoming budget, for the fiscal year starting in April, will balance these pressures against a backdrop of fiscal consolidation.

The Push for Fiscal Consolidation

A central focus of the budget is expected to be a reduction in government debt. Economists anticipate a plan to lower the debt-to-GDP ratio to a range of 49% to 51% by 2031, down from the current 56%.

To achieve this, the government is likely to target a fiscal deficit of 4.2% of GDP for the 2026-27 fiscal year, a slight improvement from this year's 4.4%. Gross borrowing is projected to rise, with estimates falling between 16 trillion and 16.8 trillion rupees ($174 billion-$183 billion), up from 14.6 trillion rupees this year.

Defence Sector Eyes a 20% Spending Boost

Following a recent conflict with Pakistan, the Defence Ministry is requesting a 20% increase in military spending.

In parallel, New Delhi is expected to ease conditions for foreign investment in domestic defence firms. The Federation of Indian Chambers of Commerce and Industry (FICCI), representing 250,000 companies, has proposed establishing defence-industrial corridors and an export-promotion council. These initiatives are aimed at helping India meet its defence export target of $5.5 billion by 2029.

Infrastructure Spending to Hold Steady

Government capital spending on infrastructure is expected to be maintained at around 3.1% of GDP. Recent cuts to income and consumption taxes have limited the government's capacity for a major spending increase.

As a result, capital expenditures are projected to rise modestly to 12 trillion rupees, up from 11.2 trillion rupees in the current fiscal year.

Exporters Seek Relief from Tariffs and Duties

India's export sector is lobbying for policy support amid external pressures, including President Donald Trump's 50% tariffs on Indian goods entering the United States.

The Federation of Indian Export Organisations is asking for lower import duties on essential inputs for key export industries, such as textiles, electronic components, and chemicals, to boost domestic manufacturing. The group is also seeking more supportive regulations and better access to long-term financing.

Calls to Overhaul Market and Corporate Taxes

Tax experts are calling for the abolition of the securities-transaction tax, which is levied on all equity and derivative trades, regardless of whether they result in a profit or loss.

Additionally, the FICCI lobby group is advocating for changes to income-tax rules that currently hinder contract manufacturing. These rules affect the ability of companies like Apple to supply machinery to their Indian manufacturing partners, and FICCI is pushing for reforms to strengthen this sector.

($1 = 91.6710 Indian rupees)

Prime Minister Narendra Modi's government is set to release its annual budget, a critical policy statement designed to shield India's economy from rising global uncertainties, including steep U.S. tariffs and geopolitical tensions.

Finance Minister Nirmala Sitharaman, who will present the budget for the next fiscal year, faces the difficult task of stimulating growth while managing tight finances. Her ability to increase spending is limited, as recent tax cuts are expected to reduce government revenue by 1.5 trillion rupees ($16 billion) this fiscal year. India's current deficit target stands at 4.4% of GDP for the 12 months ending in March.

Figure 1: Finance Minister Nirmala Sitharaman arrives to present the annual budget, a key policy document outlining India's economic path.

Modi's Vision for Long-Term Growth

Prime Minister Modi has emphasized a strategic shift toward sustainable, long-term solutions to build global trust and predictability. He has framed the next 25 years as a crucial period for transforming India into a developed economy through "next-generation reforms."

This forward-looking approach is supported by the government's recent economic survey, which forecasts GDP growth between 6.8% and 7.2% for the fiscal year beginning in April.

Deepening Domestic Policy Reforms

To boost private investment and domestic demand, New Delhi has already implemented several key reforms and is expected to announce more in the upcoming budget.

Recent initiatives include:

• Cuts to both consumption and income taxes.

• A comprehensive overhaul of national labor laws.

• Measures to open up the tightly controlled nuclear power sector.

The government also plans a third major push to expand manufacturing as a share of the economy, following two previous attempts. Additionally, the budget is expected to include measures to ease investment rules in the domestic defense manufacturing sector.

Navigating Fiscal and Trade Headwinds

The budget will also address significant financial and international challenges. Gross government borrowing is projected to rise to between 16 trillion and 16.8 trillion rupees for the next fiscal year, up from 14.6 trillion rupees this year.

On the trade front, India is actively pursuing deals to mitigate external pressures. A landmark trade agreement with the European Union is a key part of this strategy, intended to offset the economic impact of the 50% tariffs imposed by U.S. President Donald Trump on certain Indian goods.

($1 = 91.6710 Indian rupees)