Peak Coal? Why Asia's Demand Story Isn't Over Yet

The last major nuclear arms control treaty between the United States and Russia has expired, after US President Donald Trump rejected a Russian proposal to voluntarily extend its limits for another year. The move dismantles a cornerstone of post-Cold War security, fueling warnings from arms control advocates of an accelerated global arms race.

On his Truth Social platform, Trump dismissed the idea of extending the New START treaty. "Rather than extend 'New START' ... we should have our Nuclear Experts work on a new, improved and modernized Treaty that can last long into the future," he wrote.

Opponents of the pact in the U.S. argue it limited America's ability to counter nuclear threats from both Russia and China. However, the treaty's expiration now leaves the world's two largest nuclear powers without verifiable limits on their arsenals for the first time in decades.

Russia's Last-Minute Offer Rejected

The standoff came after Russian President Vladimir Putin proposed that both nations continue to adhere to the 2010 accord's cap of 1,550 warheads on 700 delivery systems—including missiles, aircraft, and submarines—for one year.

New START was the final pillar in a series of arms control agreements dating back more than 50 years. It allowed for a single five-year extension, which Putin and former U.S. President Joe Biden agreed to in 2021.

Trump labeled New START "a badly negotiated deal" and claimed it was "being grossly violated." This appears to reference Putin's 2023 decision to suspend on-site inspections, a key verification measure. Putin had cited U.S. support for Ukraine in its war against Russia as justification for the suspension.

Despite the treaty's collapse, both sides have signaled a willingness to talk. Kremlin spokesman Dmitry Peskov stated Russia remains ready for dialogue if Washington responds constructively. Similarly, White House spokeswoman Karoline Leavitt confirmed that the U.S. would continue talks with Russia.

Global Security Enters a New, Uncertain Era

Security analysts warn that without a replacement for New START, the world is entering a more dangerous and unpredictable phase. The treaty’s inspection regimes provided a critical level of trust and transparency between the nuclear adversaries.

Without these guardrails, both the U.S. and Russia may feel compelled to operate on worst-case assumptions, creating an incentive to expand their arsenals. Key concerns include:

• A higher risk of miscalculation in a crisis.

• A loss of transparency and predictability, which underpins strategic stability.

• Increased pressure to build up nuclear forces.

This dynamic is complicated by China's rapidly growing nuclear arsenal. Trump has insisted that any new treaty must include Beijing, but China has consistently refused to join negotiations with Washington and Moscow. It argues its arsenal is a fraction of theirs, with an estimated 600 warheads compared to around 4,000 each for Russia and the U.S. On Thursday, China called the treaty's expiration regrettable and urged the U.S. and Russia to resume dialogue.

Diplomatic Channels Remain Open

Negotiations were reportedly held in Abu Dhabi in the 24 hours leading up to the expiration, though they failed to produce an agreement. According to a report from Axios, it was unclear if any temporary adherence to the treaty's terms would have been formalized.

However, the talks were not a total failure. The U.S. military's European Command announced on Thursday that the U.S. and Russia had agreed in Abu Dhabi to resume a high-level military-to-military dialogue. Separately, Ukrainian President Volodymyr Zelensky noted that U.S.-backed peace talks with Russia would also continue after a round of discussions in the city.

In Moscow, the Russian Foreign Ministry declared the treaty no longer applied, freeing both sides to choose their next steps. While warning it was prepared to take "decisive military-technical countermeasures," the ministry affirmed it was also open to diplomacy. This warning seems directed at the possibility that the U.S. could now expand its own nuclear deployments by reversing steps taken to comply with New START.

A bipartisan U.S. commission recommended in 2023 that the country prepare to fight simultaneous wars with Russia and China and consider reloading some or all of its reserve warheads.

Ukraine, embroiled in war since Russia's 2022 invasion, condemned the treaty's demise. It described the event as a consequence of Russian efforts to "fragmentation of the global security architecture" and "another tool for nuclear blackmail."

Strategic nuclear weapons are long-range systems designed to strike an opponent's homeland in a full-scale war. Without an agreement, experts estimate both Russia and the U.S. could deploy hundreds of additional warheads within just a few years. As Karim Haggag, director of the Stockholm International Peace Research Institute, noted, "Transparency and predictability are among the more intangible benefits of arms control and underpin deterrence and strategic stability."

As of Jan. 30, 33% of S&P 500 (^GSPC) companies have reported fourth quarter results, according to FactSet data, and Wall Street analysts estimate an 11.9% increase in earnings per share for the fourth quarter. If that rate holds, it would represent the 10th consecutive quarter of annual earnings growth for the index and the fifth consecutive quarter of double-digit growth.

Source: Yahoo Finance

Skyrocketing food costs are dominating the conversation ahead of Japan's national election on February 8, putting Prime Minister Sanae Takaichi's government on the line. For many voters, the pressure on their household budgets has become the single most important political issue.

Voter frustration over the rising cost of living has already delivered major setbacks to Takaichi's ruling Liberal Democratic Party in previous elections. While government subsidies have provided some relief on utility bills, relentless increases in food prices have largely canceled out those benefits.

This economic pain is a critical challenge for Takaichi as she seeks a fresh mandate. Consumer inflation has remained above the Bank of Japan's 2% target for the last four years, driven significantly by the cost of groceries.

Voter Pain at the Supermarket Shapes Political Stakes

The financial strain is palpable for citizens across the country. Keiko Sato, an 81-year-old living in rural Akita, says she has stopped buying non-essential items like clothes because her budget no longer has any "real breathing room."

"When I shop at regular supermarkets, things are so expensive that I just pull my hand back and don't buy anything," she explained.

Kazue Iwata, 74, relies on a fixed pension and has been forced to cut back on leisure activities. "I really feel prices rising in everyday life—groceries, clothes, and especially rice," she said. "I'm living on a pension, so even if I want to travel, I just can't."

Polls confirm these experiences are widespread. A Nikkei survey last week found that 54% of voters cited inflation as their biggest concern heading into the election.

Takaichi's High-Stakes Bet: A Temporary Food Tax Cut

In response to this pressure, Prime Minister Takaichi has proposed a two-year suspension of the 8% tax on food and non-alcoholic beverages if her party wins the election.

The proposal has found support among consumers and retailers. The Japan Chain Stores Association is even pushing for the tax suspension to be extended to five years. However, the restaurant industry is worried that the move would encourage more people to eat at home, as dining out would still be subject to a 10% consumption tax.

The Data: Why Japanese Households Feel the Squeeze

Official data confirms the financial pressure on families. A key metric, the Engel coefficient, which measures the proportion of a household's spending that goes to food, hit 28.9% in November. This was the highest figure for that month since comparable data became available in 2000.

Japanese households spend a significantly larger share of their income on food than those in other developed nations. For comparison, families in the United States allocated only 15% of their total spending to food in 2023, according to the OECD. While cultural norms can play a role, a higher Engel coefficient is often associated with lower average incomes.

Opposition Parties Propose Bolder Tax Measures

Opposition parties have seized on the cost-of-living crisis, offering more aggressive tax-cutting plans to appeal to voters.

• Centrist Reform Alliance: The largest opposition group wants to permanently eliminate the sales tax on food.

• Democratic Party for the People: This party proposes cutting the overall consumption tax to 5%.

• Sanseito: This party has pledged to abolish the consumption tax entirely.

Hikaru Sato, a senior economist at Daiwa Institute of Research Ltd., noted the political consensus forming around tax cuts. "Almost all parties are now calling for consumption tax cuts, and that has been cited as one factor behind the weaker yen," he said. However, he cautioned that a temporary cut is "unlikely to have much effect" on lowering the Engel coefficient over the long term.

Will Inflation Cool Down in Time?

There are signs that food price inflation may be moderating. In December, the rate of increase for food prices slowed to 5.1% from 6.1% the previous month. Gains in the price of rice also decelerated to 34.4% from 37.1%.

However, these figures offer little comfort when real wage growth has been negative every month through November. Furthermore, Japan's major food companies implemented 20,609 price increases last year, a 60% jump from the year before, according to Teikoku Databank. While the number of expected price hikes for the first four months of 2026 is forecast to be 40% lower, the pressure remains intense.

Bank of Japan Governor Kazuo Ueda has also stated that he expects inflation to cool in the coming months. But for households like Yoko Sasaki's, that forecast doesn't help now. The 51-year-old housewife described the share of food costs in her monthly budget as "frightful," even after her children have moved out. "I'm trying to find cheaper options," she said.

Weak Yen and Food Imports Create Long-Term Pressure

A significant underlying factor is Japan's reliance on imports and the weak yen. The country imported over 60% of its food last fiscal year. With the yen trading around 157 to the dollar—far weaker than its 20-year average of about 111.83—the cost of imported food remains high.

"Japan's low food self-sufficiency rate has essentially remained unchanged for several decades," said Daiwa's Sato. "When currencies move sharply, as they have recently, it becomes easier for the Engel coefficient to rise" through import-driven inflation. This structural vulnerability ensures that the cost of food will likely remain a central issue for Japan's economy and its political future.

Former Bank of Japan Deputy Governor Hiroshi Nakaso believes Kevin Warsh’s experience as a Federal Reserve governor makes him well-suited to lead the central bank and safeguard its independence. Drawing from his time as a senior BOJ official when Warsh served at the Fed, Nakaso offered his assessment of Warsh’s ability to navigate political pressure and build internal consensus.

Hiroshi Nakaso, former Bank of Japan Deputy Governor, shares his perspective on Kevin Warsh's suitability for the Federal Reserve.

A Crisis-Tested Communicator

Nakaso, whose tenure at the BOJ overlapped with Warsh’s Fed term from 2006 to 2011, remembers him as an “excellent communicator” who was both logical and approachable. He expects these qualities would enable Warsh to build strong relationships within the Fed and with the presidential administration.

Both men gained critical experience during the 2008 global financial crisis. Nakaso notes that this difficult period forced them to deeply consider the core mission and policies of a central bank. He recalls that Warsh held then-Fed Chair Ben Bernanke in high regard for his ability to listen to diverse opinions and forge consensus during the turmoil.

According to Nakaso, Warsh’s five years absorbing the Fed’s organizational culture is a lasting asset. If appointed, he hopes Warsh will act as a chair who upholds the central bank's established values.

Navigating Political Pressure on the Fed

Concerns about political interference have become a significant issue for the Federal Reserve. Markets have worried that the Trump administration's open involvement in monetary policy could undermine confidence in the U.S. dollar.

However, Nakaso suggests that the administration's choice of Warsh may signal a respect for the Fed's independence. He believes Warsh understands the importance of the central bank's role. Following the announcement, market reactions indicated a perception that Warsh would maintain a proper distance from the administration, which helped calm excessive speculation about interest rate cuts.

Re-evaluating Past Views on Monetary Policy

Warsh has previously criticized the Fed's quantitative easing (QE) and advocated for shrinking its balance sheet. He left his governor position during QE2, the second round of post-crisis asset purchases. While QE1 was an all-out effort to contain the crisis, QE2 was aimed at accelerating the economic recovery.

Nakaso acknowledges the general view that large-scale asset purchases propped up asset prices. However, he also points out that at the time, few policymakers outside of central banks were capable of taking effective action.

Regarding the risk of hasty quantitative tightening, Nakaso thinks it is unlikely Warsh would shrink the balance sheet immediately. The financial landscape has changed significantly since Warsh’s tenure. Financial institutions now earn interest on their central bank deposits, allowing for monetary policy to be conducted with a larger balance sheet.

Furthermore, post-crisis financial regulations have fragmented the market, making it harder to gauge liquidity needs. The Fed already ended its quantitative tightening program last December after carefully reducing its liquidity supply, and it is currently providing liquidity through short-term government bond purchases.

Given these changes, Nakaso believes Warsh would adapt. Citing his strong communication skills and ability to assess situations, he expects that if Warsh becomes chair, he will listen to internal Fed opinions and respond appropriately to the current environment.

The Global Consensus on Central Bank Autonomy

The principle of central bank independence is built on the historical lesson that price stability is best managed by experts, protecting economies from the damage of high inflation.

Nakaso points to a statement signed by leaders of major central banks in solidarity with Fed Chair Jerome Powell as evidence of this shared conviction. The statement reflected a collective alarm that threats to Fed independence could ultimately harm global financial stability.

While BOJ Governor Kazuo Ueda did not sign the statement, Nakaso emphasizes that price stability relies on a stable financial system—a shared responsibility among the world’s central banks. He argues that effective, coordinated action in emergencies depends on unwavering trust that each central bank is making its own independent judgments. This, he states, is the true meaning of solidarity, a principle he believes the BOJ fully supports.

A lengthy two-hour phone call between President Trump and President Xi on Wednesday painted two starkly different pictures of the U.S.-China relationship. While Trump celebrated the conversation as "excellent" and "thorough," the official Chinese summary revealed a more contentious discussion centered on Beijing's core interests.

Xi's "Red Line" on Taiwan

According to Beijing's readout, Xi Jinping dedicated a significant portion of the call to Taiwan, which he described as "the most important issue in China-U.S. relations." He delivered a direct warning, declaring that China "will never allow Taiwan to be separated from China."

Chinese President Xi Jinping's official portrait backdrop underscores the nationalistic tone of his warnings to the U.S. over Taiwan.

Xi specifically targeted Washington's ongoing military support for the self-ruled island, stating, "The US must handle arms sales to Taiwan with extreme caution." This was a clear reference to the billions in arms packages approved by multiple U.S. administrations.

Taipei's Defiant Response

Taiwan responded quickly to the details of the call. President Lai Ching-te told reporters on Thursday that the bilateral relationship remains strong. "The Taiwan-US relationship is rock solid, and all cooperation projects will continue uninterrupted," he affirmed.

Separately, Taiwan's foreign ministry highlighted that U.S. weapons sales are proceeding without interruption, despite Xi's warnings.

An Olive Branch on Trade

Despite the geopolitical friction, the call also contained a potential economic goodwill gesture. President Trump announced that China is considering a substantial increase in its purchases of U.S.-farmed soybeans, from 12 million tons to 20 million metric tons for the current season. The news prompted a rally in soybean futures.

Trump's Optimism Clashes with Military Reality

President Trump has consistently emphasized the importance of maintaining open communication with Beijing. Following the call, he posted on Truth Social, "The relationship with China, and my personal relationship with President Xi, is an extremely good one, and we both realize how important it is to keep it that way." He added, "I believe that there will be many positive results achieved over the next three years of my Presidency."

However, this optimistic tone contrasts with recent actions. In December, the U.S. State Department announced its largest-ever arms sale package to Taiwan, valued at over $11.1 billion and including missiles, artillery systems, and drones. The package still requires approval from Congress.

China's reaction to that proposal was swift and angry, culminating in two days of large-scale military drills involving air, navy, and missile units around Taiwan in late December.

Treasury Secretary Scott Bessent faced sharp questioning from the U.S. Senate regarding President Donald Trump's aggressive push for interest rate cuts, a campaign that critics fear could ignite inflation.

During a Thursday hearing of the Senate's Financial Stability Oversight Council, Democratic senators pressed Bessent on rising consumer prices and Trump's apparent efforts to influence the Federal Reserve, the nation's independent central bank.

Figure 1: Treasury Secretary Scott Bessent testified before the Senate, facing questions on Federal Reserve independence and inflation.

Trump's Campaign for Lower Interest Rates

The hearing follows President Trump's repeated public demands for the Federal Reserve to slash interest rates as low as possible. In a December interview with The Wall Street Journal, Trump stated he wanted to see rates at "one percent and maybe lower than that," adding, "We should have the lowest rate in the world." The current federal interest rate stands at approximately 3.6 percent.

Economists warn that while a sudden, deep rate cut could create a short-term market boom by making loans cheaper, the resulting flood of cash into the economy could devalue the dollar and trigger higher prices over the long term.

This push for lower rates coincides with Trump's nomination of Kevin Warsh to replace Jerome Powell as Federal Reserve chair. Powell has drawn sustained criticism from the president for his policy of lowering rates gradually.

A Pattern of Pressure on Fed Officials

The Federal Reserve has long operated as an independent agency, a principle designed to shield national monetary policy from political interference. However, critics accuse President Trump of attempting to undermine this independence through legal threats and investigations targeting Fed members.

Recent actions have intensified these concerns:

• Lisa Cook: In August, Trump tried to fire Federal Reserve Governor Lisa Cook, an appointee of his predecessor Joe Biden, over allegations of mortgage fraud, which she denies. Cook has claimed the move was politically motivated, and the case is now before the Supreme Court.

• Jerome Powell: In early January, the Department of Justice launched a criminal investigation into current Fed Chair Jerome Powell, focusing on his management of renovations to the Federal Reserve building. Powell responded with a rare public statement, accusing the president of using the threat of criminal charges to bully Fed leaders into adopting his preferred interest rate policy.

Bessent Under Fire in Senate Hearing

Against this backdrop, a recent comment from President Trump about his Fed nominee fueled further alarm. Trump joked about suing Kevin Warsh if he failed to follow presidential demands on interest rates. While Trump later dismissed the remark as "all comedy" during a press gaggle on Air Force One, senators at the hearing were not amused.

Warren Questions Fed Nominee's Independence

Senator Elizabeth Warren directly confronted Bessent over the report, asking for a commitment that Warsh would not be sued or investigated if he did not cut interest rates as Trump desires.

"Mr Secretary, can you commit right here and now that Trump's Fed nominee Kevin Warsh will not be sued, will not be investigated by the Department of Justice, if he doesn't cut interest rates exactly the way that Donald Trump wants?" Warren asked.

Bessent sidestepped the question, replying, "That is up to the president."

Warren rebuked the Treasury chief, stating, "I don't think the American people are laughing. They're the ones who were struggling with the affordability."

Figure 2: Senator Elizabeth Warren questioned Treasury Secretary Scott Bessent during a Financial Stability Oversight Council hearing.

Bipartisan Rebuke from Senator Tillis

The concern over the administration's actions extended across the aisle. Senator Thom Tillis, a Republican, opened his remarks by denouncing the investigation into Jerome Powell. While acknowledging his own disappointment with the current Fed chair, Tillis stated his belief that Powell committed no crime.

He warned that such probes would discourage transparency and hinder future oversight hearings, imagining a scenario where officials, fearing "perjury traps," would refuse to answer questions without extensive legal consultation. "Is that really the way we want oversight to go in the future?" Tillis asked.

Figure 3: Republican Senator Thom Tillis expressed concern that the investigation into Fed Chair Jerome Powell could undermine future government oversight.

For his part, Bessent told the council that he supported the Federal Reserve's long-term inflation target of about 2 percent. "What is desirable is to get back to the Fed's 2 percent target, and for the past three months, we've been at 2.1 percent," he noted.

New Scrutiny Over Trump's IRS Lawsuit

The hearing also turned to another contentious issue: President Trump's lawsuit against the Internal Revenue Service (IRS), a department within his own executive branch.

Trump is seeking $10 billion in damages related to the leak of his tax returns during his first term. The leak was perpetrated by a former government contractor, Charles Littlejohn, who has since been sentenced to five years in prison.

Democrat Ruben Gallego questioned the apparent conflict of interest, given that Trump's own Justice Department would defend the lawsuit and could potentially approve a settlement paid for by taxpayers.

When Gallego asked where the $10 billion would come from, Bessent confirmed, "It would come from Treasury." He added that Trump has said any awarded money would go to charity and that the Treasury would not be the entity deciding on the damages.

Gallego pressed further, noting that Bessent, as a political appointee who can be fired by the president, would ultimately be in charge of disbursing the funds. "Have you recused yourself from any decisions about paying the president on these claims?" Gallego asked.

Bessent again evaded a direct answer, stating simply, "I will follow the law."