‘Japan has not overcome deflation’, finance minister warns

Good morning. We start with an interview with Japan’s finance minister, who warned that the country has not yet conquered deflation. Also in today’s newsletter:

• A stunning security breach in the US

• The new nuclear arms race

• Why Singapore’s luxury car sales have nosedived

Japan has not yet beaten deflation despite years of persistently rising consumer prices and the largest round of annual wage increases in three decades, the country’s finance minister has warned.

Katsunobu Kato’s blunt assessment in an interview with the FT comes 15 months into the Bank of Japan’s efforts to “normalise” the economy and gradually reintroduce positive interest rates, after a quarter-century-long battle to steer the country away from falling prices.

Kato acknowledged that Japan was experiencing rising prices and that other trends appeared positive, but said the government could only declare victory over deflation when it saw no prospect of sliding back.

“I believe we need to judge carefully whether Japan has broken away from deflation by not only looking at the consumer prices, but looking at underlying prices and background in a comprehensive fashion . . . It is our judgment at present that Japan has not overcome deflation,” Kato said.

The minister’s comments echo some economists’ fears that, while prices are rising, they largely represent the “wrong” type of inflation: driven by a weak yen and high commodity costs rather than a virtuous cycle of rising wages and consumer demand. Read the full interview.

Here’s what else we’re keeping tabs on today:

• Economic data: Japan reports February sales at department store and Taiwan publishes industrial output for the month.

• Boao Forum for Asia: The annual conference, dubbed the “Asian Davos”, opens on China’s southern island of Hainan.

• HSBC Global Investment Summit: The two-day event, hosted by the bank’s chair Mark Tucker, begins in Hong Kong.

• Australia budget announcement: Treasurer Jim Chalmers presents the annual federal fiscal statement to parliament.

Five more top stories

1. Top US officials accidentally shared classified details about last week’s military strikes on Yemen with a journalist in an unofficial messaging group, in a stunning breach of security that triggered uproar in Washington. The vice-president and defence secretary were among the members of a Signal chat group that discussed operational details of the attack.

2. China is considering including services in a multibillion-dollar subsidy programme to stimulate consumption, according to officials and academics. The potential support for travel, tourism and sports would come in addition to an existing “trade-in” programme for goods such as mobile phones or cars. Here’s more on Beijing’s efforts to boost weak domestic demand.

3. Israel’s military has drawn up plans to reoccupy Gaza in a bid to finally defeat Hamas. The new military leadership, with the unofficial backing of Israeli far-right ministers, has formulated an extreme proposal to fight the militant group, said several people briefed on the plans.

4. BYD’s annual sales have topped $100bn for the first time, as China’s electric vehicle champion dominates its domestic market and presses ahead with overseas expansion. Unlike its US rival Tesla, which only sells fully electric vehicles and reported revenue of $98bn last year, BYD has benefited from resurgent demand in China for hybrids. The results cap a remarkable 12 months for the Chinese group.

5. Indonesia has named investor Ray Dalio and economist Jeffrey Sachs as advisers to its new sovereign wealth fund Danantara. The appointments come amid growing investor concerns over governance at the fund, which is expected to manage state assets worth about $900bn. 

News in-depth

Donald Trump’s pivot to Moscow and scathing disregard for Nato has prompted old allies — from Berlin and Warsaw to Seoul and Tokyo — to confront what was once unthinkable: how to prepare for a withdrawal of their US nuclear shield.

We’re also reading . . . 

• Weight-loss drugs: Ozempic and Wegovy may mean vast gains for drugmakers but they could also upend the insurance sector, writes Patrick Jenkins.

• AI chips: Malaysia is coming under US pressure to stem the illicit flow of high-end chips from California-based Nvidia to China, the country’s trade minister told the FT.

• US exceptionalism: Its end has long predated Trump, and will continue to play out for a long time, writes Ruchir Sharma.

Chart of the day

Luxury car sales in Singapore have plummeted as buyers shun displays of wealth after the government raised taxes on the vehicles and stepped up due diligence checks in response to a $2bn money-laundering scandal.

Take a break from the news . . . 

The upheaval of Covid lockdowns prompted a rethink not just of where we work but when and why. FT writers and contributors assess what is different five years on.