Russia Launches Year's Most Concentrated Barrage On Ukraine

Prime Minister Sanae Takaichi’s consideration of a snap general election is sending shockwaves through Japan’s financial markets, raising concerns that political maneuvering could trigger a fiscal crisis by derailing critical government funding legislation.

Reports that Takaichi may dissolve parliament as early as this month for a February election have already pushed the yen and Japanese government bond (JGB) prices lower. The move, if it proceeds, would halt parliamentary business shortly after it convenes on January 23. This pause threatens the passage of an essential bill that authorizes the government to issue deficit-covering bonds, a cornerstone of its budget financing.

Figure 1: Prime Minister Sanae Takaichi's consideration of a snap election has introduced significant uncertainty into Japan's fiscal planning.

Understanding Japan's Deficit-Bond Dilemma

Japanese law strictly limits government bond issuance to "construction" bonds used for public works projects. To fund its massive stimulus packages and the rising social welfare costs of an aging population, the government has long relied on a workaround: a special, time-limited bill that permits the issuance of "deficit-covering" bonds.

The current five-year authorization is set to expire at the end of the fiscal year in March. To fund its spending plans for fiscal 2026 and beyond, the government must pass a new bill. Failure to do so would leave a massive hole in the national budget, creating a scenario many are calling Japan's version of a "fiscal cliff."

A Record Budget Hanging in the Balance

The stakes are exceptionally high. Takaichi's administration has laid out a record $783 billion budget, nearly a quarter of which is financed by debt.

Of the 29.6 trillion yen ($186.4 billion) in new debt planned for fiscal 2026, a staggering 22.9 trillion yen is composed of the deficit-covering bonds that require the new legislation. Without that bill, the government would lack the funds to cover its extensive spending commitments.

Political Fallout and Market Volatility

The political calculations behind a snap election are complex. While Takaichi's ruling coalition holds a slim majority in the lower house, it lacks control of the upper house. A decisive election victory could strengthen her political mandate but would still necessitate cooperation with the opposition to pass legislation.

Approval of the debt bill was previously considered a formality, with the opposition Democratic Party for the People (DPP) signaling its support. However, an early election could sour that cooperation, as it would sideline the DPP's own legislative priorities, including tax break proposals.

DPP leader Yuichiro Tamaki has now stated that his party's support for the debt bill is "in flux," according to Kyodo news agency. This new uncertainty has rattled investors.

"In terms of a snap election, there's little to be bullish about the bond market," noted Keisuke Tsuruta, a senior bond strategist at Mitsubishi UFJ Morgan Stanley Securities. He warned that heightened political risk would make investors hesitant, potentially putting "upward pressure on the yield curve."

This pressure is already visible, with the yield on the benchmark 10-year JGB hitting a 27-year high on Tuesday amid expectations that a snap election could empower Takaichi to pursue even more aggressive fiscal stimulus.

Japan's Enduring Debt Challenge

The political turmoil unfolds against a backdrop of immense national debt, which stands at twice the size of Japan's economy—the highest ratio among major economies. Debt-servicing costs already consume over a quarter of government spending. These costs are projected to grow as the Bank of Japan continues to raise interest rates, compounding the long-term fiscal challenges facing the nation.

($1 = 158.8000 yen)

Donald Trump has issued a stark ultimatum, threatening a 25% tariff on any country that conducts business with Iran. The announcement, made as Washington assesses its response to major anti-government protests in Iran, marks a significant escalation in economic pressure.

In a Monday post on Truth Social, the US president declared, "Effective immediately, any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America."

Trump added that the order was "final and conclusive," but offered no further details. Tariffs of this nature are typically paid by US-based importers, and Washington already maintains heavy sanctions against Iran.

White House Silent as China Pushes Back

Despite the definitive tone of the social media post, the White House website showed no official documentation of the policy. There was no information regarding the legal authority Trump would use to impose such tariffs or a clear list of targeted trading partners. The White House did not respond to a request for comment.

The move drew a swift response from China, a major destination for Iranian exports along with the United Arab Emirates and India. Beijing stated it opposes "any illicit unilateral sanctions and long-arm jurisdiction" and would "take all necessary measures to safeguard its legitimate rights and interests."

A spokesperson for the Chinese embassy in Washington reinforced this position on X, saying, "China's position against the indiscriminate imposition of tariffs is consistent and clear. Tariff wars and trade wars have no winners, and coercion and pressure cannot solve problems."

Tariffs as Leverage Amid Iran's Unrest

Trump's tariff threat comes at a time of high tension. Iran, which engaged in a 12-day war with US ally Israel last year and saw its nuclear facilities bombed by the US military in June, is now facing its largest anti-government demonstrations in years.

Trump has previously stated that the US might meet with Iranian officials and that he is in contact with Iran's opposition, while simultaneously threatening military action to pressure Tehran's leaders.

On Monday, White House Press Secretary Karoline Leavitt confirmed that airstrikes were among the "many, many options" under consideration but stressed that "diplomacy is always the first option for the president."

Leavitt also suggested a disconnect between public and private communications. "What you're hearing publicly from the Iranian regime is quite different from the messages the administration is receiving privately, and I think the president has an interest in exploring those messages," she said. Tehran confirmed on Monday that communication channels with Washington remain open.

A Closer Look at Iran's Protests

The demonstrations in Iran have evolved from grievances over economic hardship into direct calls for the fall of the clerical establishment. The Iranian regime has responded with a harsh crackdown.

Key elements of the government's response include:

• Mass arrests, with the US-based Human Rights Activists News Agency reporting over 10,600 detentions.

• Severe internet blackouts, making it difficult to gauge the situation from abroad.

• Public warnings that participating in protests could result in the death penalty.

While the Iranian government has not released casualty figures, the Norway-based NGO Iran Human Rights has confirmed at least 648 deaths. In response to the unrest, France has evacuated non-essential embassy staff from Iran.

The government has also organized pro-regime rallies, with tens of thousands taking to the streets of Tehran on Monday in a state-sponsored show of support.

Trump's Tariff-Heavy Playbook Under Scrutiny

Throughout his second term, Trump has frequently used tariffs as a tool to pressure countries over their ties with US adversaries or what he deems unfair trade policies.

This latest move adds to a trade policy agenda already facing legal challenges, as the US Supreme Court is currently considering a case that could strike down a wide range of Trump's existing tariffs.

The potential scope of the new Iran-focused tariff is vast. According to the most recent World Bank data from 2022, Iran, a member of OPEC, exported products to 147 different trading partners.

Russia is actively developing new strategies to bypass the latest US sanctions, ensuring the continued flow of its discounted crude oil to India, one of its most important customers.

Since the war in Ukraine began, India has emerged as the second-largest global buyer of Russian crude, taking advantage of steep discounts offered in the face of Western economic pressure. This trade relationship has strained ties between the US and India, with the Trump administration accusing New Delhi of financing Moscow's war effort.

Figure 1: Russian President Vladimir Putin and Indian Prime Minister Narendra Modi have maintained strong political and economic ties, underpinning the ongoing energy trade despite pressure from the US.

US Pressure Mounts on New Delhi

The diplomatic and economic friction has escalated in recent months. In August, the Trump administration imposed a punitive 25% tariff on Indian imports to the US, directly linking the measure to India’s purchases of Russian crude.

India, however, refused to alter its policy, asserting that its energy decisions are a matter of national sovereignty and would not be dictated by other nations. Trade negotiations between the two countries have since stalled. The White House recently intensified its threats, floating the possibility of 500% tariffs and withdrawing from several India-led global initiatives if the oil purchases continue.

Sanctions Show Initial Impact

The latest round of US sanctions, implemented at the end of November, was designed to specifically disrupt the Russia-India oil trade. The rules targeted any company or refinery purchasing oil from Rosneft and Lukoil, Russia's two largest oil exporters and the primary suppliers to the Indian market.

Initial figures suggest the sanctions had an effect. In December, India's imports of Russian oil fell by approximately one-third, dropping from a daily average of 1.7 million barrels to around 1.2 million barrels.

Despite this decline, industry analysts remain skeptical that these measures will sever India's reliance on Russian crude in the long run. Even after the sanctions took hold, four of India’s seven largest oil refineries continue to operate primarily on Russian oil.

Russia's Playbook: Shadow Exporters Emerge

Evidence already suggests that Russia is reorganizing its supply chain to help partners like India circumvent the sanctions. A significant loophole allows refineries to avoid US penalties as long as the crude is supplied by a company other than Rosneft or Lukoil.

By December, export data revealed the emergence of several new Russian oil exporters. These entities are believed to be shadow middlemen, created to stand between Russia's oil giants and foreign refineries.

"It looks like the new players are emerging, which is a sign that Russia is already trying to reorganise the supply chain," said Homayoun Falakshahi, head crude oil analyst at Kpler. "Obviously the Russians are not going to sit and just watch the sanctions take effect, they will try to bypass them as much as they can."

Falakshahi predicts these new companies will soon dominate exports, estimating it will only take "two or three months until the full supply chain gets reorganised." After that, he expects most barrels will be supplied by firms not named Rosneft or Lukoil, effectively neutralizing the sanctions.

The Irresistible Logic of a Steep Discount

For a country like India, which imports 90% of its oil, the economic incentive to buy Russian crude is powerful. Following the latest US sanctions, the discounts have become even more attractive, with Russian barrels selling for $9 to $10 less than comparable oil from Saudi Arabia or Iraq.

"For the companies that are still willing, buying Russian oil is a risk worth taking because it would represent savings of almost $4bn over a year," Falakshahi noted. "We expect that imports, at least by India's public sector, will soon return to the levels seen previously."

June Goh, a senior oil market analyst for Sparta Commodities, echoed this sentiment. "The discount is just too attractive for the Indian refiners not to buy the oil," she said. This market reality was reflected in global oil prices, which initially rose on the news of the sanctions but have since fallen back as traders concluded that enforcement would be limited.

One Exception: Reliance Halts Russian Imports

Not all Indian refiners are continuing with Russian oil. Reliance, India's largest private oil company and previously a top buyer, announced it would no longer import Russian crude for its Jamnagar refinery. The company cited its "impeccable record" of complying with sanctions, and January marked its first month with zero Russian imports.

This move appears to be a response not only to US pressure but also to EU sanctions that prevent Russian-origin oil processed in a third country from entering the European market. As the EU is a major export destination for Reliance's diesel and jet fuel, violating the sanctions posed a significant business risk.

As Reliance looks for alternatives, analysts suggest an opportunity may be emerging. The company is reportedly in talks with the US for authorization to resume purchases of Venezuelan oil, a market India previously sourced from before sanctions were imposed. A Reliance spokesperson confirmed they would "consider buying the oil in a compliant manner."

In a landmark development for global energy markets, coal-fired power generation in China and India fell simultaneously last year, an event not seen since the 1970s. According to new analysis, this historic shift was driven by a record-breaking expansion of clean energy, signaling a potential turning point for global carbon emissions.

A Landmark Decline in Coal Consumption

Research from the Centre for Research on Energy and Clean Air, commissioned by Carbon Brief, reveals that electricity generated by coal plants dropped by 1.6% in China and 3% in India during the past year.

The simultaneous decline in the world's two largest coal-consuming nations is a significant milestone. The report describes the drop in coal power and the corresponding surge in clean energy as a "historic moment" that could be "a sign of things to come."

The global implications are substantial. Together, China and India accounted for over 90% of the increase in global carbon emissions between 2015 and 2024. A sustained reduction in their coal dependency could signal a peak in worldwide coal consumption and, consequently, global emissions.

Record Clean Energy Growth Fuels the Transition

The primary driver behind this downturn in coal use was the explosive growth in renewable energy capacity in both countries. The rollout of new clean energy projects was so extensive that it not only met rising electricity demand but also began to displace existing coal-fired generation.

China's Unprecedented Renewable Expansion

China led the charge with a massive build-out of renewable infrastructure. Last year, the country added over 300 gigawatts (GW) of solar power and 100 GW of wind power. To put this in perspective, this combined capacity is more than five times the total existing power generation capacity of the United Kingdom. The report notes these figures are "clear new records for China and, therefore, for any country ever."

India's Progress Aided by Multiple Factors

India also made significant strides, adding 35 GW of solar, 6 GW of wind, and 3.5 GW of hydropower. The analysis found that this growth in clean energy was responsible for 44% of the reduction in coal and gas power generation compared to the previous five years.

However, the reduction in India was also influenced by other factors. Milder weather contributed to 36% of the fossil fuel reduction, while slower growth in underlying energy demand accounted for another 20%. This suggests that a severe summer, which would increase demand for air-conditioning, could potentially reverse some of these gains.

Global Context and Future Outlook

This positive development comes after a period of uncertainty for global coal markets. Russia's war on Ukraine caused a spike in global gas prices, prompting many developing nations to turn to cheaper coal and delaying an anticipated peak in global coal power.

Just over a year ago, the International Energy Agency (IEA) projected that a rebound in coal use following the pandemic could keep consumption at near-record levels until 2027. The latest data from China and India presents a powerful counter-narrative, suggesting the global energy transition may be accelerating faster than previously expected.

The Japanese yen tumbled to its lowest point against the US dollar since July 2024, as speculation intensified that Prime Minister Sanae Takaichi may be preparing to call a snap election.

On January 13, the currency weakened by as much as 0.5%, hitting 158.91 per dollar and breaking its previous low of 158.87 set in January 2025. In contrast, Japan's Nikkei share index surged, climbing as much as 3.6% after local media reported that Ms. Takaichi intends to dissolve parliament on January 23. This move would pave the way for a general election as early as February 8.

Election Politics and the "Takaichi Trade"

An early election could serve to reinforce the prime minister's authority, especially given her high popularity. This political maneuver would likely breathe new life into the "Takaichi trade," an economic strategy associated with her administration that has previously contributed to a weaker yen and losses in the bond market.

Fundamental Pressures on the Yen

The yen's decline is not solely driven by political news. It was the worst-performing currency among its Group-of-10 peers in 2025, managing only a 0.3% gain against the dollar. Several underlying factors continue to weigh on the currency:

• Wide US-Japan yield gaps: The difference in interest rates between the two countries makes holding dollar-denominated assets more attractive.

• Negative real rates: Japan's interest rates remain low, eroding the yen's value.

• Persistent capital outflows: Money continues to leave Japan in search of higher returns elsewhere.

Reflecting these pressures, some currency analysts forecast the yen could weaken further, potentially reaching 160 per dollar or beyond by the end of 2026.

Intervention Risk Back in Focus

The rapid currency slide has put Japanese officials on high alert. Finance Minister Satsuki Katayama has escalated warnings against what she describes as "excessive and speculative" moves in the foreign exchange market. These concerns were also shared with US Treasury Secretary Scott Bessent during a bilateral meeting in Washington.

This brings the possibility of direct government intervention back into the spotlight. The Ministry of Finance last stepped into the currency market on July 12, 2024, when the dollar-yen rate reached a daily high of 159.45. The ministry intervened three other times that year when daily highs hit 161.76, 160.17, and 157.99.

Officials have consistently stated that they are more concerned with the speed and volatility of the yen's movements rather than any specific exchange rate level. In Japan, intervention decisions are made by the Ministry of Finance and carried out by the Bank of Japan, which typically sells US dollars to strengthen the yen.

U.S. Securities and Exchange Commission (SEC) Chair Paul Atkins has indicated that the government's response to unconfirmed reports of Venezuela holding a massive $60 billion Bitcoin reserve is still an open question, stressing that any such decision is beyond the SEC's purview.

Speaking with Fox Business on Monday, Atkins addressed claims that Venezuela possesses up to 600,000 BTC. When asked if the United States would "take those Bitcoin," he deferred, stating, "I leave that to others in the administration to deal with — I'm not involved in that."

Venezuela's Unverified $60 Billion BTC Hoard

The speculation surrounding Venezuela's crypto holdings emerged after U.S. forces, acting on President Donald Trump's orders, captured then-President Nicolás Maduro for criminal proceedings in New York.

Despite the explosive nature of the reports, blockchain analysts and intelligence platforms have so far been unable to verify the existence of the $60 billion crypto stash. However, the Maduro regime has a history of involvement with the digital asset industry. In 2018, the country launched its own oil-backed digital currency, demonstrating a clear interest in the sector.

US Crypto Regulation Faces Key Senate Test

While international crypto enforcement remains a complex issue, the focus in Washington is turning toward domestic market structure. Atkins' comments came just days before the U.S. Senate Banking Committee is set to hold a markup on the Digital Asset Market Clarity Act, also known as CLARITY.

The bill, which aims to establish a clearer regulatory framework for digital assets, was passed by the House of Representatives in July. Its progress in the Senate has been slow, partly due to a 43-day government shutdown in October and November.

The legislation still faces several hurdles. Key points of contention include:

• Stablecoin Rewards: Banks and some crypto companies have raised concerns about provisions targeting stablecoin rewards.

• Ethics and DeFi: Many Democrats are pushing for stronger ethics guardrails and more precise rules governing decentralized finance.

The bill's path forward is uncertain, with potential delays from the upcoming 2026 midterm elections and the possibility of another government shutdown at the end of January. A central goal of early drafts is to grant the Commodity Futures Trading Commission (CFTC) expanded authority to regulate digital assets.