Japan’s Q1 GDP Contraction Softens, but Tariff Worries Keep Recovery Outlook Clouded

Oil prices held on to last week's gains early on Monday as investors waited for U.S.-China trade talks to be held in London later in the day.

Brent crude futures were flat at $66.47 a barrel at 0008 GMT. U.S. West Texas Intermediate crude was trading up 1 cent at $64.59.

The prospect of a U.S.-China trade deal supported prices as three of Donald Trump's top aides were set to meet with counterparts in London on Monday for the first meeting of the U.S.-China economic and trade consultation mechanism.

The announcement on Saturday followed a rare Thursday call between the two countries' top leaders, with both under pressure to dial down tensions as China's export controls on rare earths disrupt global supply chains. Oil prices posted their first weekly gain in three weeks on the news.

A U.S. jobs report showing unemployment held steady in May appeared to increase the odds of a Federal Reserve interest rate cut, further supporting last week's gains. Inflation data from China on Monday morning will give a reading of domestic demand in the world's largest crude importer.

The economic data and the prospect of a trade deal that could support economic growth and increase demand for oil outweighed worries about increased OPEC+ supply after the group announced another big output hike for July on May 31.

HSBC expects OPEC+ to accelerate supply hikes in August and September, which are likely to raise downside risks to the bank's $65 per barrel Brent forecast from the fourth quarter of 2025, according to a research note on Friday.

Capital Economics researchers said they believe this "new faster pace of (OPEC+) production rises is here to stay".

Source: Yahoo Finance

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

Key points:

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

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