RBI Holds Interest Rates as US Tariff Relief Boosts Outlook

The United States has issued an urgent security alert, advising American citizens to "leave Iran now" as tensions escalate ahead of high-stakes diplomatic talks scheduled for Friday in Oman. The notice from the U.S. Virtual Embassy in Iran cautioned Americans to arrange for their departure without relying on assistance from the U.S. government.

The alert comes as representatives from Washington and Tehran prepare for their first official meeting since a major flare-up last year, with little sign of common ground on the agenda.

Iranian special forces stand guard in Tehran, reflecting the heightened security situation across the country.

High-Stakes Talks Clouded by Uncertainty

The U.S. delegation for the talks is set to include Special Envoy Steve Witkoff and Jared Kushner, son-in-law of President Donald Trump. They are expected to meet with a team led by Iran's Foreign Minister, Abbas Araghchi.

This meeting marks the first formal dialogue between the two nations since June of last year, when a 12-day war between Iran and Israel prompted U.S. airstrikes that caused severe damage to Iran's three primary nuclear facilities.

However, significant disagreements over the format and location of the talks have cast a shadow over their potential for success, leaving the possibility of U.S. military action on the table. The negotiations were initially planned to take place in Istanbul, with Turkey acting as a key mediator alongside other regional powers like Egypt, Qatar, and Saudi Arabia.

On Tuesday, Tehran requested a last-minute change, moving the meeting to Oman and restricting it to only Iranian and American officials.

Core Disputes Fueling the Standoff

The diplomatic maneuvering unfolds against a backdrop of increasing military pressure. The U.S. has been building up its forces in the Gulf, and President Trump recently intensified his rhetoric, threatening military strikes if Tehran fails to meet a list of American demands.

According to reports, the U.S. government's key demands include:

• The complete disposal of Iran's enriched uranium stockpile.

• Strict limits on Tehran's ballistic missile program.

• An end to the arming and funding of militant groups across the Middle East.

Iran has rejected these terms, describing them as an unacceptable violation of its national sovereignty. Tehran has warned it will respond forcefully to any attack by striking U.S. military targets in the region as well as Israel.

Military Buildup and Internal Pressures

The current standoff is further complicated by Iran's internal situation. Tensions escalated earlier this year following nationwide protests, which were met with a severe government crackdown. According to the Human Rights Activists News Agency, a Washington-based organization, at least 6,883 people had been killed as of Wednesday.

While President Trump had previously threatened to intervene in support of the protestors, he ultimately did not take military action at that time.

Japan's economy is expected to have returned to growth in the final quarter of 2025, reversing a significant contraction from the previous period. A Reuters poll of economists indicates that the recovery was fueled by strong corporate investment and resilient consumer activity.

Forecast Points to 1.6% Annualized GDP Growth

The median forecast among 16 economists suggests that Japan's real gross domestic product (GDP) expanded at an annualized rate of 1.6% in the October-December period. This marks a notable turnaround from the 2.3% drop recorded in the third quarter, which was the steepest decline in two years.

Without annualization, the quarterly growth rate is estimated at 0.4%. According to Naoki Hattori, chief Japan economist at Mizuho Research & Technologies, this return to expansion "would confirm that the Japanese economy remains on a gradual recovery path."

What's Driving the Expected Recovery?

The anticipated growth is primarily supported by two key pillars of the domestic economy: business spending and private consumption.

Strong Corporate Investment Leads the Way

Capital expenditure is seen as a major driver, projected to have grown by 0.8% after contracting 0.2% in the previous quarter. This rebound is underpinned by positive business sentiment, as a Bank of Japan (BOJ) survey in December showed that confidence among large manufacturers had reached a four-year high.

Consumption Remains Resilient Despite Inflation

Private consumption, which accounts for more than half of Japan's GDP, is forecast to have edged up by 0.1%. This modest growth is considered resilient, as it occurred while consumer inflation continued to run above the Bank of Japan's 2% target, putting pressure on household budgets.

Trade and Monetary Policy Factors

External demand also played a positive role, while the economic data influenced central bank policy. Net exports are estimated to have added 0.1 percentage points to fourth-quarter GDP growth. This contrasts with the third quarter, when trade subtracted 0.2 percentage points from growth, partly due to the initial impact of U.S. tariffs on exports.

The milder-than-expected economic fallout from the tariffs appears to have given the Bank of Japan confidence. The central bank raised interest rates to 0.75% from 0.5% in December and later upgraded its forecasts for both economic growth and inflation.

Looking ahead, Prime Minister Sanae Takaichi has committed to boosting the economy with proactive fiscal policy, a pledge made in the run-up to a snap election on Sunday. These promises sent government bond yields to record highs last month.

The official preliminary GDP data for the fourth quarter of 2025 will be released by the government on February 16 at 8:50 a.m. local time (2350 GMT on February 15).

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India's Commerce Minister Piyush Goyal has signaled a major expansion of trade with the United States, announcing that New Delhi is prepared to place orders for up to $80 billion in Boeing aircraft.

Figure 1: Indian Commerce Minister Piyush Goyal, a key figure in the country's trade negotiations, outlined the potential for a landmark aircraft deal with the United States.

Speaking on Thursday, Goyal stated that India's demand for aircraft includes nearly $80 billion in orders for Boeing that are "yet to be placed but ready." He added that factoring in engines and spare parts could push the total value of these U.S. imports to over $100 billion from the aviation sector alone.

This potential deal comes as Boeing faces a lawsuit from the families of passengers who died in an Air India crash in Ahmedabad last June. The lawsuit alleges that defective dual switches contributed to the disaster, which claimed 241 of the 242 lives on board.

Beyond aviation, Goyal noted the potential for India to procure at least $500 billion in goods from the U.S. over the next five years. However, he clarified that this figure does not represent an explicit investment commitment within the U.S.-India trade agreement.

Trump's Claims vs. India's Cautious Stance

The announcement followed a social media post on Monday from U.S. President Donald Trump, who declared that Washington and New Delhi had reached a trade agreement.

According to Trump, the deal involves several key concessions:

• The U.S. will reduce tariffs on Indian goods to 18%.

• India will lower duties on American goods to zero.

• India will replace Russian oil with supplies from the U.S. and Venezuela.

• India will open sensitive markets, including agriculture.

• India will purchase $500 billion worth of American goods.

While the Indian Prime Minister welcomed the tariff cut from the current 50% rate, he did not confirm the other details outlined by Trump.

Scrutiny Mounts Over Deal's Ambitions

Experts have expressed skepticism about the feasibility of Trump's claims, particularly the $500 billion purchase target, which many have called "a stretch." For context, India's total goods imports for the 2025 financial year stood at $720.24 billion, with only $45.3 billion sourced from the United States.

The Indian government has remained tight-lipped on the specifics of the deal, drawing criticism from opposition parties. Rahul Gandhi, India's opposition leader, accused Prime Minister Modi of being "compromised" and of having "surrendered on Tariffs."

New Delhi has not officially confirmed key elements of Trump's announcement, such as the zero-duty commitment for U.S. goods, the halt of Russian oil imports, or the firm $500 billion purchase plan. Analysts warn that Trump's "unrealistic" claims could jeopardize the deal, drawing parallels to his threats to raise tariffs on South Korea despite a trade agreement.

Timeline for the New Trade Agreement

Minister Goyal provided a timeline for finalizing the initial phase of the trade pact.

A joint statement is expected within the next 3-4 days, after which the new 18% U.S. tariff on Indian exports will take effect. A formal agreement is slated for mid-March, which will activate India's tariff concessions for U.S. goods.

Japan's two largest banks, Mitsubishi UFJ Financial Group (MUFG) and Sumitomo Mitsui Financial Group (SMFG), are preparing to increase their holdings of Japanese government bonds (JGBs), signaling a major strategy shift after more than a decade. The move is driven by rising interest rates that now promise higher returns, even as both institutions face unrealized losses on their existing bond portfolios.

A Strategic Reversal After a Decade

For the last ten years, Japan's megabanks steadily reduced their exposure to JGBs. The Bank of Japan's ultra-low interest rate policy meant the returns on these bonds were negligible, forcing lenders to look elsewhere.

That long-standing trend now appears set to reverse.

Yields on JGBs have climbed sharply since November, a move initially triggered by Prime Minister Sanae Takaichi's proposed spending plans. While the sudden rise in yields hurt the value of existing bonds, the market has found a calmer footing in recent weeks. Demand has been solid across the last four debt auctions, and 30-year JGB yields have fallen 32 basis points from their record high of 3.88% on January 20.

"With long-term interest rates showing signs of peaking, I think we'll cautiously rebuild our JGB position," Takayuki Hara, managing director and head of MUFG's CFO office, said at a press briefing.

Navigating Unrealized Losses

The decision to buy more JGBs comes with a significant caveat: rising yields have already inflicted paper losses on the banks' current holdings. When market yields rise, the value of older bonds bought at lower yields falls, creating unrealized losses.

MUFG, Japan's largest lender, reported unrealized losses of 200 billion yen ($1.3 billion) on its bond portfolio at the end of the year, a substantial increase from 40 billion yen at the end of March. The bank noted it had sold longer-duration bonds between September and December, a move that helped it avoid even greater losses.

SMFG, the country's second-largest bank, shares a similar outlook. A spokesperson at its earnings briefing confirmed the bank plans to "gradually increase our JGB positions, taking into account the market outlook." SMFG's own unrealized losses on JGBs more than doubled to 98 billion yen in the nine months leading up to the end of December.

To manage risk, Japan's major banks, including the third-largest player Mizuho Financial Group, have focused on short-duration bonds in recent years. As of December, Mizuho's average remaining period for its JGB holdings was just 1.8 years.

Cautious Market Outlook and Potential Hurdles

Despite the banks' statements, some investors and analysts believe a significant pivot into longer-duration bonds may not be immediate. Several factors could delay substantial purchases:

• The prospect of further rate hikes from the Bank of Japan.

• Market concerns over Japan's enormous national debt burden.

Political developments are also a key variable. With polls suggesting Prime Minister Takaichi is poised to win the upcoming general election, her expansionary fiscal policies could gain momentum, potentially pushing bond yields even higher.

"I think the JGB curve will rise, and the 10-year rate could reach 2.5%," said Toshinobu Chiba, a fund manager at Simplex Asset Management. He added that this level, compared to the current 2.195%, could serve as a more attractive entry point for the banks to start buying in size.

Higher Rates Fuel Record Profits

This strategic shift is taking place against a backdrop of renewed profitability for the banking sector. The Bank of Japan raised interest rates in March 2024 for the first time in 17 years, and three more hikes have followed, bringing the main policy rate to 0.75%.

This new rate environment has directly contributed to all megabanks forecasting record profits for the current financial year. The Topix banking index has surged, doubling in value since the first rate hike in March 2024 and significantly outperforming the broader Topix index's 33% gain.

Analysts predict that increasing their positions in higher-yielding JGBs will further boost bank earnings in the years ahead. Reflecting this optimism, Goldman Sachs analyst Makoto Kuroda recently raised her 2028 financial year forecasts for all three megabanks. Citing the BOJ's December rate hike, the jump in JGB yields, and a weaker yen, she increased net profit estimates for MUFG by 20%, SMFG by 11%, and Mizuho by 21%.

Vietnam’s trade surplus with the United States expanded by nearly 30% year-on-year in January, driven by a significant climb in exports. Simultaneously, imports from China surged to a new monthly record, according to official data released on Friday.

The export growth comes as Hanoi continues trade negotiations with Washington. These talks follow the Trump administration's imposition of 20% tariffs on Vietnamese products in August and threats of higher duties on goods made with components sourced from China. Despite these tariffs, Vietnam's exports to the U.S. have consistently risen, setting a record high last year.

US Trade Surplus Widens Despite Tariffs

The trend of strong exports to the U.S. continued into the new year, with shipments reaching a value of $13.9 billion in January. This marks a substantial increase from the $10.5 billion recorded in the same period a year earlier, though it is slightly below the $14.6 billion from December.

As a result, Vietnam’s trade surplus with the U.S. reached $12 billion for the month. This figure represents a nearly 30% increase compared to the previous year and is just shy of the $12.3 billion surplus seen in December.

Record Imports from China Drive Overall Deficit

While exports to the U.S. boomed, imports from China hit an all-time monthly high of $19 billion. This is an increase from $18.7 billion in December and a sharp rise from the $12 billion imported in January 2025.

This surge in imports contributed to a wider national trade picture. In total, Vietnam's exports rose 29.7% year-on-year to $43.19 billion. However, total imports soared by 49.2% to $44.97 billion, resulting in an overall trade deficit of $1.78 billion for January.

A Snapshot of Vietnam's Domestic Economy

Beyond trade, other key economic indicators for January showed mixed but generally positive performance:

• Industrial Production: Grew by 21.5% compared to the previous year.

• Consumer Prices: Rose 2.53% year-on-year.

• Retail Sales: Increased by 9.3% from a year earlier.

Foreign Investment Shows Diverging Trends

Foreign investment data presented a more complex outlook. Actual foreign investment inflows into Vietnam during January reached $1.68 billion, an 11.3% increase year-on-year.

However, investment pledges, which serve as an indicator of future capital flows, declined. Pledges fell by 40.6% compared to the same month last year, totaling $2.58 billion.