Prabowo's Spending Plans Test Indonesia's Fiscal Limits

Data Interpretation

Economic

Summary:

Indonesia's fiscal deficit is set to breach its legal limit due to new spending, with analysts divided on the outcome.

Analysts at Citigroup are warning that Indonesia's fiscal deficit is on track to surge past its legal limit this year, driven by major spending initiatives from the new government. The key drivers include a nationwide free meals program and extensive rebuilding efforts in flood-damaged provinces on Sumatra island.

Citigroup Projects a Widening Budget Gap

In a recent note, Citi revised its forecast for Indonesia's 2026 budget deficit to 3.5% of gross domestic product (GDP), a significant increase from its previous estimate of 2.7%. This projection assumes the government will amend the State Finance law before the second half of the year to lift the long-standing 3% fiscal deficit cap.

This development follows a budget shortfall of 2.9% of GDP in 2025, which was the widest deficit in at least two decades, excluding the pandemic era. The strain on state finances is intensifying as soft economic growth and weaker commodity prices impact revenue, just as President Prabowo Subianto prepares to boost social spending.

Citi also projects that Indonesia's debt-to-GDP ratio will climb from an estimated 39% in 2025 to approximately 42% by 2029. However, the bank notes that a breach of the fiscal cap could be avoided if the government opts for sharp spending cuts to maintain fiscal discipline.

The Core Drivers of Indonesia's Rising Deficit

The anticipated rise in government spending stems from several large-scale programs:

• Free Meals Program: Citi expects this initiative to reach its full scale of 83 million beneficiaries by the second quarter, pushing its total cost to around 300 trillion rupiah ($18 billion).

• Sumatra Flood Rebuilding: Reconstructing the flood-hit provinces may require an estimated 60 trillion rupiah over an unspecified period.

• Regional Transfers: Payments to regional governments could also increase as Prabowo aims to advance difficult reforms this year.

These costs could also deplete the government's contingency spending buffers—funds set aside to cover revenue shortfalls or emergency expenses.

Bank of America Offers a Contrasting View

While Citigroup anticipates a breach, Bank of America Corp. maintains that the budget deficit will likely be kept under the 3% GDP threshold this year. However, BofA economists expressed concern over Indonesia's lackluster revenue collection.

In a note, they argued that the government's target to increase state revenue by 14% annually in 2026 appears ambitious given the current trend. Revenue collections actually shrank in the early months of 2025, and only a 16% jump in December revenue likely prevented the deficit from exceeding the legal limit last year.

Still, BofA suggests the government has options. It could tap into its sizable contingency fund allocated for 2026 or simply rein in its spending plans to stay within the established fiscal boundaries.

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

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Justin

Commodity

Forex

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_1

Gold (XAU) breaks record above $4,550 as safe-haven demand increased on geopolitical tensions and expectations of US interest rate cuts. A weaker than expected US jobs report supported the rally in the precious metals.

The main reason for increase in gold price despite the overbought conditions is the increase in geopolitical tensions. According to some reports, President Trump is considering military action in Iran in the wake of civilian unrest. Meanwhile UK and Germany are planning to increase their presence in Greenland and this escalates Arctic tensions. These developments have added a degree of uncertainty around the world that strengthens the traditional role of gold as a safe haven during a crisis.

On the other hand silver prices are supported by the same combination of macro risks and dovish expectations. However, silver does have industrial demand which provides another layer of strength. The recent pullback has been shallow which indicates ongoing bullish interest. With gold setting records silver (XAG) is catching up, and the psychological target of around $100 is now not far away.

The market is now awaiting the U.S. CPI inflation report that is due on Tuesday. This data may provide confirmation for the Fed rate cut paths. A softer inflation print may add more fuel to the rally in gold and silver.

Gold Technical Analysis

The daily chart for spot gold shows that the price has made excellent support at $4,260 after breaking higher and currently looks strong. The rebound from $4,260 looks constructive and is pointing higher in the coming days.

The price action is now completing a new ascending broadening wedge pattern and this pattern suggests much higher levels in 2026.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_2

The 4-hour chart for spot gold illustrates that the correction off $4,550 met strong support at $4,260 and created an inverse head and shoulders above this level.

The picture of the inverted head and shoulders in the red shaded area means a strong bullish pattern. This bullish price action suggests more upside in the next few days.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_3

Silver Technical Analysis

The daily chart of spot silver shows that the silver price is trading within ascending broadening wedge pattern and looks set to trade higher. The immediate resistance is still in the $90 to $100 level.

The formation of a cup and handle pattern inside the ascending broadening wedge is a good sign of continued upside for next few days. As long as the strong support of $70 is respected, it is certain that the next move in the silver market will be higher.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_4

The 4-hour chart of spot silver shows that silver is forming bullish price action within the ascending broadening wedge pattern. The target of the ascending broadening wedge is still between $90 to $100.

The formation of the ascending broadening wedge pattern shows high volatility as the price is approaching the psychological level of $100.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_5

US Dollar Technical Analysis

The daily chart of the US Dollar Index shows that the index rebounded from 97.50 support and hit 200 day SMA. The index is now consolidating between the 50 day and 200 day SMA and looks uncertain.

Since both averages are approaching the 99 level, the next move in the US Dollar Index is uncertain. A break below 97.50 will signal more downside towards 96.50. However, a break above 100.50 is needed to cancel the bearish pressure in the US Dollar Index.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_6

The 4-hour chart for the US Dollar Index shows a period of very strong consolidation between the 96.50 and 100.50 levels. Despite this consolidation, the overall price action is still negative.

A break below 97.50 is needed to take the index further down. However, a break above 100.50 will take the index to 102 level.

Gold And Silver Analysis: Geopolitical Risks And Fed Cut Bets Drive Bullish Breakouts_7

Source: FX Empire

Risk Warnings and Disclaimers

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Isaac Bennett

Remarks of Officials

Forex

Economic

Political

Japan’s ruling Liberal Democratic Party (LDP) is reportedly preparing to dissolve the Lower House for a snap election, potentially as early as February. This strategic move appears designed to leverage Prime Minister Sanae Takaichi's remarkably high public approval ratings and solidify the LDP's grip on power.

Prime Minister Sanae Takaichi's high approval ratings are fueling speculation of a snap election in Japan.

LDP Aims to Capitalize on Takaichi's Popularity

According to public broadcaster NHK, preparations are already underway, with the Ministry of Internal Affairs and Communications instructing prefectural election boards to get ready for a possible general election.

The timing is driven by Prime Minister Takaichi's strong public standing. A Nikkei survey puts her approval rating at a historic 75%, marking the third consecutive month it has stayed above the 70% threshold. This popularity persists even as her government navigates a diplomatic dispute with Beijing, sparked by her November comments suggesting Japan's Self-Defense Forces might intervene in response to Chinese military action against Taiwan.

If called in February, the election would occur just four months into Takaichi's term. It would also be the first national test for the LDP's new coalition with its junior partner, the Japan Innovation Party (JIP). Speaking to Takaichi, JIP leader Hirofumi Yoshimura noted that the prime minister's perspective on the election's timing has shifted to a "new stage," signaling that discussions are advancing.

A Fragile Hold on the Diet

While Takaichi's personal ratings are high, her coalition's control over the legislature is thin. The LDP and JIP, along with three independents, hold 233 seats—a slim majority in the 465-seat Lower House.

The situation is more challenging in the Upper House, where the coalition is in the minority with only 119 of the 250 seats. A successful snap election could strengthen the coalition's mandate and provide a more stable foundation for its policy agenda.

Opposition Parties Sense an Opportunity

The opposition is gearing up for a fight. Yoshihiko Noda, leader of the Constitutional Democratic Party of Japan (CDP), the country's largest opposition party, has vowed to oust the ruling coalition.

The CDP currently holds 148 seats in the Lower House and is reportedly exploring an alliance with Komeito, the LDP's former coalition partner. Komeito, which controls 24 seats, broke its long-standing partnership with the LDP in October 2025 during Takaichi's run for prime minister, citing "illegal political financing practices" within the LDP. The LDP-Komeito alliance had been a cornerstone of Japanese politics since 1999.

Economic Headwinds Challenge the Government

Despite her political strength, Prime Minister Takaichi faces a complex set of economic challenges that could become central issues in an election campaign. Key concerns include:

• A Weakening Yen: The Japanese yen has fallen to its weakest level against the dollar in a year, recently hitting 158.19.

• Persistent Inflation: Consumer inflation has remained above the Bank of Japan's target for 44 consecutive months, putting pressure on households.

• Economic Contraction: Revised GDP figures for the third quarter revealed that the economy shrank by 0.6% quarter-on-quarter and 2.3% on an annualized basis, a deeper contraction than initially estimated.

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

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Gerik

Political

Widespread Unrest and Mounting Civilian Deaths

Iran’s internal crisis has intensified dramatically, with more than 544 confirmed deaths and over 10,000 individuals imprisoned since protests erupted nearly three weeks ago. The unrest, recorded across all 31 provinces and 186 cities, now represents one of the most significant threats to the current regime in over a decade. These figures, provided by the U.S.-based Human Rights Activists News Agency, indicate the extraordinary scale of the movement, though precise data remains difficult to verify due to ongoing state-enforced communication blackouts.

The regime’s response has included heavy-handed crackdowns and a nationwide restriction of internet and phone access. The dramatic collapse in digital connectivity reportedly down to just 1% of standard levels has not only curtailed global visibility into the unrest but also attempted to silence dissent. Yet, demonstrators persist. In defiance of warnings, hundreds of thousands continue to gather in public spaces, many flashing mobile lights in darkened streets while chanting against Supreme Leader Ayatollah Ali Khamenei.

The communication blackout, although intended as a tool of suppression, is a correlated not necessarily causal factor in the protestors’ resilience. Rather than dissuading mobilization, these restrictions may have reinforced the sense of oppression fueling public anger.

International Involvement and Strategic Uncertainty

President Donald Trump has stated that U.S. military leaders are examining a “range of strong options” for responding to Iranian actions, including the possibility of direct strikes. The President also signaled potential support in restoring internet access via Elon Musk’s Starlink satellite system. While this remains a speculative solution, it reflects the growing entanglement of geopolitical and technological actors in the evolving conflict.

Iranian leaders have framed the crisis as foreign-instigated, with President Masoud Pezeshkian accusing the U.S. and Israel of introducing “terrorists” who allegedly committed extreme violence, including arson and executions. These claims, absent independent verification, appear to serve a narrative aimed at delegitimizing grassroots anger by externalizing blame.

Parliament Speaker Mohammad Bagher Ghalibaf extended the warning further, suggesting Iran may preemptively target U.S. and Israeli military assets if provoked. This rhetoric underscores a causally significant escalation in Iran’s posture, potentially inviting further international tension.

Contrasting Leadership Responses: Condolences vs. Threats

While Pezeshkian offered public condolences and vague promises of reform during a televised interview, no concrete measures were outlined. His conciliatory tone diverged sharply from the militaristic statements of other officials. This internal discrepancy suggests a lack of strategic consensus within the regime, which may further exacerbate public distrust and confusion.

Meanwhile, exiled opposition figures such as Reza Pahlavi, son of Iran’s former shah, have encouraged sustained strikes and occupations of city centers. His advocacy for seizing this moment to “liberate” Iran from authoritarian control marks a symbolic push for regime change, albeit without a clearly defined alternative leadership structure.

Unverified Footage and Human Cost

Despite digital suppression, disturbing images have surfaced online. Videos from Tehran reportedly show families searching through rows of body bags in makeshift morgues. Other scenes reveal torchlit protests, burned-out government buildings, and city-wide blackouts. Though these visuals remain unverified by independent sources like Bloomberg, they serve as visceral testimonies of a nation in crisis.

The developments in Iran reflect a complex interplay of domestic dissatisfaction, authoritarian resistance, and international pressure. While the protest movement has demonstrated remarkable endurance despite brutal crackdowns and information suppression, it remains uncertain whether this upheaval will culminate in reform, regime change, or further repression.

The factors influencing this crisis digital censorship, military rhetoric, foreign policy narratives, and grassroots mobilization are intertwined through both causal and correlational relationships. Any external intervention, whether military or technological, may radically shift the trajectory, but the human toll continues to mount regardless.

In the coming days, how the U.S., Israel, and internal Iranian factions navigate these pressures will determine whether the unrest evolves into a turning point in Iranian history or sinks further into violent stalemate.

Source: Bloomberg

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Isaac Bennett

Remarks of Officials

Energy

Economic

Political

President Donald Trump has suggested he may exclude Exxon Mobil from a U.S.-led initiative to rebuild Venezuela's oil industry, citing his dissatisfaction with the company's cautious approach.

"I'd probably be inclined to keep Exxon out," Trump told reporters Sunday aboard Air Force One. "I didn't like their response. They're playing too cute."

The president's comments appear to stem from a White House meeting on Friday where Exxon's Chief Executive Officer, Darren Woods, expressed significant reservations about the plan.

Exxon's Skepticism at White House Meeting

During the meeting with nearly 20 oil industry executives, Woods reportedly described Venezuela as "uninvestable." This skeptical assessment stands in contrast to the president's ambitious push to reconstruct the nation's energy sector following the capture of former President Nicolás Maduro.

Woods’s caution is rooted in Exxon's past experiences. The company has had its assets seized by the Venezuelan government twice and ultimately left the country after its operations were nationalized in the mid-2000s under President Hugo Chávez.

"If we look at the legal and commercial constructs and frameworks in place today in Venezuela today, it's uninvestable," Woods stated at the meeting. However, he added that Exxon would be ready "to put a team on the ground" if it received an invitation from the Venezuelan government along with adequate security guarantees.

The Challenge of Venezuelan Reinvestment

Reviving Venezuela's oil sector after years of mismanagement and underinvestment is a monumental task. Estimates suggest it could require $100 billion and take a full decade to complete.

Despite recent U.S. actions to control Venezuelan oil exports, significant questions remain about how long-term investments can be protected in a country plagued by corruption and instability. When asked what guarantees he offered the oil companies, Trump said, "Guarantees that they're going to be safe, that there's going to be no problem. And there won't be."

It remains unclear how the president might formally exclude Exxon from any future plans. The company did not immediately provide a comment.

Competitors Signal a Different Approach

While other executives at the meeting also expressed caution, some were more optimistic about the opportunity in Venezuela.

Chevron, Exxon's largest U.S. competitor, has maintained operations in the country. Vice Chairman Mark Nelson told attendees that Chevron is prepared to increase its output from the current 240,000 barrels per day. He projected that production could rise by approximately 50% within the next 18 to 24 months.

Similarly, Josu Jon Imaz San Miguel, CEO of the Spanish company Repsol, said his firm was "ready to invest more in Venezuela today" once the necessary legal and commercial frameworks are established.

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

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Gerik

Economic

Commodity

Japan’s Deep-Sea Gamble: Sourcing Rare Earths from the Ocean Floor

In a major strategic move to lessen its dependence on China for critical minerals, Japan has launched the Chikyu, a mining test vessel, on a month-long mission to extract rare-earth-rich mud from the deep-sea floor near Minamitori Island, located 1,900 km southeast of Tokyo. This mission is the first in the world to attempt continuous lifting of rare-earth sludge from a depth of 6 km onto a vessel, showcasing Japan’s ambition to become self-sufficient in a resource it currently imports predominantly from China.

Shoichi Ishii, head of the government-backed project, emphasized that building a domestic supply chain is key to safeguarding Japanese industry, which relies on rare earths for manufacturing cars, smartphones, and defense technologies.

Rising Pressures from China Spark Urgency

The urgency of this mission is underscored by recent developments: China has reportedly broadened its rare-earth export restrictions to Japan, following a ban on dual-use items that serve both civilian and military purposes. Although China hasn’t officially confirmed the broader ban, state media have suggested Beijing is considering it. These actions echo the 2010 rare-earth standoff, when China halted exports to Japan following a maritime dispute an event that served as a wake-up call for Japanese policymakers.

In response, Japan has already reduced its dependence on Chinese rare earths from 90% in 2010 to about 60% today, through efforts such as investments in Australia’s Lynas Rare Earths via trading house Sojitz, and initiatives promoting recycling and alternative manufacturing processes.

Minamitori Island: A Strategic Shift Toward Domestic Supply

The Minamitori operation symbolizes a new frontier. Unlike previous efforts focusing on overseas partnerships, this project targets rare-earth self-reliance by tapping into Japan’s exclusive economic zone. While Japan holds the rights to these resources, technical and environmental challenges remain.

According to Takahide Kiuchi of the Nomura Research Institute, this project is a necessary step but unlikely to fully insulate Japan from supply risks in the short term:

“If this new round of export controls ends up covering a lot of rare earths, Japanese companies will again make efforts to move away from China, but I don’t think it will be easy,” Kiuchi noted.

G7 and Global Strategic Implications

Japan’s move is also gaining attention internationally. Finance ministers from the G7 industrial nations are expected to discuss rare-earth supply chain diversification in Washington, highlighting the global significance of resource security amid escalating China-U.S.-Japan tensions.

As China continues to leverage its dominance over rare earths as a geopolitical tool, Japan’s deep-sea expedition near Minamitori represents a critical pivot point not just for Tokyo’s industrial resilience, but also for how democratic nations will secure vital resources in a fracturing global trade system.

Source: Reuters

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James Riley

Remarks of Officials

Economic

Central Bank

Political

Federal Reserve Chair Jerome Powell has accused the Trump administration of launching a criminal investigation into his conduct as a direct assault on the central bank's political independence.

In a statement on Sunday, Powell asserted that the probe is a retaliatory measure for the Federal Reserve’s decisions on interest rates. "The charges are a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President," he said.

Details of the Criminal Investigation

The US attorney for Washington, D.C., opened a criminal investigation into Powell on Friday, The New York Times reported. The inquiry centers on two main points:

• The renovation of the Federal Reserve's headquarters.

• Whether Powell misled Congress about the scale of the construction project.

A Fight Over Monetary Policy

Powell, whose term as Fed chair is set to end in May, framed the investigation as a pivotal moment for the future of American monetary policy.

He argued the core issue "is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation."

A History of White House Pressure

The investigation follows a prolonged period of public criticism from President Donald Trump, who has consistently attacked Powell and the Federal Reserve for not cutting interest rates as he demanded.

The President has previously threatened legal action over the Fed building's renovations and has openly stated his intention to fire Powell. In a related move, Trump fired Fed governor Lisa Cook amid accusations of mortgage fraud, though the Supreme Court later blocked her removal.

Succession Looms as Term End Nears

With Powell's term concluding, the Trump administration has already assembled a list of potential loyalist candidates to lead the central bank, many of whom are expected to favor lower interest rates.

Kevin Hassett, a key economic adviser to Trump, is widely seen as the leading candidate to replace Powell. Despite this, Hassett has stated that the President's opinions on interest rates would hold "no weight" on the agency's decisions if he were in charge.

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