Economy

1. Nvidia revenues top estimates as chipmaker hails AI “tipping point”Shares in Nvidia (NASDAQ:NVDA) jumped in U.S. after market trade on Wednesday, touching a new record high, after the chipmaker clocked stronger-than-expected fourth-quarter revenues and delivered a sales outlook for the current three-month period that was also above Wall Street estimates.Chief Executive Jensen Huang, weighing in on the boom in artificial intelligence that has fueled a surge in the company’s valuation over the past 12 months, said the nascent technology is at a “tipping point.””Demand is surging worldwide across companies, industries and nations,” he said.Gains in Nvidia, which manufactures the graphics processors that help train AI systems, spilled into Asian semiconductor stocks.Japanese semiconductor testing equipment maker — and Nvidia’s biggest supplier — Advantest Corp. (TYO:6857) rose and was within sight of a record high. Taiwan’s TSMC (TW:2330), the world’s biggest contract chipmaker and a key Nvidia supplier, climbed close to an all-time high as well.2. Futures higher after Nvidia reportsU.S. stock futures pointed to a positive opening in New York on Thursday, with investors hailing Nvidia’s 265% spike in revenue and bullish outlook for AI demand.By 03:11 ET (08:11 GMT), the futures contract for the tech-heavy Nasdaq 100 had jumped by 317 points or 1.8%, while Dow futures had risen by 114 points or 0.3% and S&P 500 futures had gained 50 points or 1.0%.Along with being one of the so-called “Magnificent 7” group of megacap stocks that combined to account for more than 60% of the S&P 500’s total return in 2023, Nvidia is also seen as a bellwether of the AI boom that has helped underpin recent strength in equities.Speaking with investors, Huang said Nvidia’s high-end chips had become the “AI-generation factories” in a new industrial revolution that will encompass “every industry.” The company is now looking to bolster this position, although analysts have flagged that intensifying competition and cooling sales in China may complicate this task.3. Federal Reserve officials uncertain about early interest rates cuts – minutesFederal Reserve policymakers signaled that they were worried about slashing interest rates too soon, saying they needed further confidence that price pressures were continuing to abate, according to the minutes of the Federal Reserve’s January policy meeting released on Wednesday.The minutes showed that “they did not expect it would be appropriate to reduce the target range” for the key federal funds rate until they had “greater confidence” that inflation was cooling back down towards its 2% target.At the conclusion of the gathering on Jan. 31, the Federal Open Market Committee, or FOMC, kept its benchmark rate at a more than two-decade high of 5.25% to 5.5%. But the minutes suggested that the central bank believed rates were likely at their peak “for this tightening cycle.”Since the meeting, economic data points have suggested that putting out the lingering embers of inflation could prove to take longer than anticipated, placing bumps on the road to a “soft landing” — a scenario in which price gains are quelled without sparking a broader downturn in the economy or jobs market.4. Rivian’s annual production guidance misses expectationsRivian (NASDAQ:RIVN) unveiled Wednesday annual production guidance that fell short of Wall Street estimates at a time of waning U.S. demand for electric vehicles.For 2024, the electric truck maker said it expects to produce 57,000 vehicles, missing Wall Street expectations of 66,000. The company is also planning to reduce its salaried workforce by 10% in response to a “challenging macroeconomic environment,” according to media reports.Shares in Rivian fell sharply in after hours trading on Wednesday.5. Oil ticks higherOil prices ticked slightly higher in European trade on Thursday, as bets on tightening global supplies due to disruptions in the Middle East were offset by signs of another outsized build in U.S. inventories.Crude prices have seen wild swings this week as markets grapple with fears of worsening demand and potential supply disruptions from an ongoing conflict in the Middle East.Brent oil futures expiring in April had jumped by 0.2% to $83.23 a barrel, while West Texas Intermediate crude futures had risen 0.3% to $77.53 per barrel by 03:12 ET. More

TOKYO (Reuters) – The Bank of Japan will pull the plug on its eight-year negative interest rate policy in April, according to more than 80% of economists polled by Reuters, marking a long-awaited major shift from a global outlier central bank. Nearly the same proportion of economists, 76%, also expect the BOJ to scrap yield curve control at that meeting, with almost all saying ultra-loose monetary conditions will end then, just months before many major central banks are expected to start cutting rates.The BOJ is on track to end negative interest rates in coming months despite Japan’s economy slipping into a recession, sources have previously told Reuters.In the Feb. 15-20 Reuters poll, 25 of 30 economists, or 83%, said the central bank will in April ditch its minus 0.1% short-term deposit rate, which has been in place since January 2016. “(The BOJ) can make a decision at April’s meeting based on the preliminary results of the annual labour-management wage talks for big firms and the hearings from BOJ branch managers on wage trends in small and mid-sized firms,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. Two entities, Daiwa Securities and T&D Asset Management, chose March. Another said June and two others selected 2025 or later. “The longer (BOJ) waits, the more likely it is to miss the right moment as the uncertainty of foreign factors increase,” said Mari Iwashita, Daiwa Securities’ chief market economist, referring to an impending policy shift by the BOJ’s peers.Nearly every economist, 91% providing end-quarter rate forecasts, expects negative rate policy to be abandoned by end-year, up from 82% in January’s poll. BOJ Governor Kazuo Ueda, however, has repeatedly stressed Japan’s monetary conditions will likely remain accommodative even after the central bank scraps negative rates. YCC ON ITS LAST LEG, EYES ON WAGE TALKS The poll also showed 25 of 29 economists – or 86% – expecting BOJ to end YCC, far surpassing four who said it would be modified. That was roughly in line with January’s poll. Of those 25 economists, 19 expected the central bank to dismantle YCC in April. All but one of the 19 respondents said an end to negative rates would happen simultaneously. Almost every economist, 97% of those polled, predicted average wage growth and base salary increases in the next fiscal year starting in April would exceed this year’s 3.58% at big Japanese firms, up from 90% when asked in January. For Japanese firms, including small and mid-sized firms, the poll increase was sharper, with 90% of economists anticipating a bigger increase, up from 77% in January and 65% in November. The range of pay increases will fall between 3.6% and 4.36% in mid-March for big companies and between 1.5% and about 4.0% for overall businesses, economists said. (For other stories from the Reuters global economic poll:) More

This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. It’s Kate Duguid in New York; thanks for having me back to guest host Unhedged while Rob is off. It’s never a good idea to be the follow-up act to Katie Martin, but here goes.First, though, Nvidia. The chipmaker’s shares had dipped ahead of yesterday’s earnings, perhaps on the thought that beating investors’ sky-high expectations would be too hard. But no! Nvidia blew estimates out of the water. Its stock was up 9 per cent in after-market trading. If you were looking for a downside, our smart stocks correspondent Nick Megaw notes that sales in China continue to pose a challenge as export rules have forced the company to scale back in the region. But for now it doesn’t seem to be enough to offset blowout numbers everywhere else. Songs of praise can be sent to [email protected]. All complaints to [email protected]. The Fed probably won’t raise rates againIs it bananas to say that the Federal Reserve could raise interest rates this cycle? Put another way, am I willing to call Larry Summers bananas? In an interview with Bloomberg last week, the economist said that because of persistent inflationary pressures, there was a “meaningful” chance — he put the odds at around 15 per cent — that the Fed’s next move on rates could be an increase. “The worst thing you can do when the doctor prescribes you antibiotics is finish part of the course, feel better and give up on the antibiotics,” said Summers. It’s not just Summers, either. Bloomberg followed up the interview with a big piece titled “Markets Start to Speculate If the Next Fed Move Is Up, Not Down”. Mark Nash, who manages the absolute return macro fund at Jupiter Asset Management, told Bloomberg that he put the odds at 20 per cent. (A note on 15 per cent odds — that’s the same chance an NFL kicker has of missing a 37-yard field goal, but also the odds that The New York Times put on Donald Trump winning the 2016 election.)Summers’ argument comes just after a big market rethink of where rates are going. At the start of January, the futures market had six quarter-point cuts priced in. These market expectations were always at odds with the Fed’s own forecasts, but traders were betting on a rapid deceleration in inflation this year — like we saw in the back half of 2023. Since January, the macro picture has changed a bit. Inflation is falling slower than expected and the jobs market looks sturdy. That is on top of clear signals from Fed chair Jay Powell that the Fed would take its time before cutting. So rates traders reined in their expectations. Today, three to four cuts are priced in, starting in June rather than March:Market expectations are now much more in line with the Fed’s own thinking. The central bank’s December projections showed the average official forecasting three cuts in 2024, a view that Powell restated at the bank’s January meeting, and then again in a February interview on CBS’s 60 Minutes. Combining the somewhat more inflationary economic picture with the trend in market expectations for rates, does it make sense to start betting on the chance of a rise? I don’t think so. Start with Summers’ argument. He mostly cited January CPI figures, which did come in hot. Headline inflation cooled less than expected, leaving the year-over-year rate at 3.1 per cent. Core inflation was stagnant at 3.9 per cent. Summers focused especially on “supercore” (non-shelter services) and on owners’ equivalent rent, which rose an annualised 7 per cent in January. Though he conceded it was just one month of data, Summers said the CPI numbers could also mark a “mini paradigm shift”. But that seems far-fetched, or at least too early to tell. The day it happened, Ethan laid out why we should take the data with a grain of salt: inflation expectations look calm, the OER jump looks like noise, and January inflation data tends to be wonky. It is reasonable to think that February’s figures will be a little cooler. Yes, stock and bond markets did take the inflation data poorly. But that speaks less to the data itself than the amount of disinflation and rate-cut optimism priced into markets. The below chart from Meghan Swiber, US rates strategist at Bank of America, shows just how out of whack the market was with Fed expectations. The market-Fed expectations disconnect has only been so wide in previous moments of crisis (March 2020, the Silicon Valley Bank mini-crisis) or during monetary policy pivots: There is no sign from the Fed that it expects to raise interest rates this year. The minutes from January’s Fed meeting, released on Wednesday, showed officials were “highly attentive” to inflation risks and wary of cutting interest rates too quickly. Buoyant stock and credit markets are adding to Fed caution: “several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause progress on inflation to stall.” But in spite of all these reservations, the Fed is still only talking about rate cuts. “The odds of an outright hike are tough, because the Fed would have to see a significant reacceleration in core inflation momentum, ” said Gennadiy Goldberg, head of US rates strategy at TD Securities. It’s important to note that the Fed can only influence certain types of inflation. Any reacceleration would likely have to occur in core inflation — ie, not including higher energy prices — and would have to reflect overly strong demand. Supply chain snarls might not count.And even in the case of re-accelerating core inflation, the Fed still might not raise rates. Markets are sufficiently all-in on cuts this year that failing to deliver them would be “toxic”, said Goldberg. You could get a dramatic repricing: tanking equity markets, widening corporate credit spreads, much tighter financial conditions. This would do much of the Fed’s work for it. “Just by keeping rates at [today’s] 5.5 per cent, the Fed would be doing a fair amount of tightening,” said Goldberg. This is the strongest point against increases: why would you need them?To have renewed tightening, we’d probably have to see the US labour market heat up more. The labour market’s trend towards better supply-demand balance, which Powell has touted in every recent meeting, would probably have to not just stall, but reverse. This would change the calculus for the Fed. Instead of facing two-sided risks to its dual mandate, the risk of higher unemployment would start looking diminished. Like in 2022, inflation-fighting mode would kick in.So is thinking about rate rises this year bananas? No; it’s a real tail risk. But Summers’ 15 per cent probability strikes me as too high. It’s premature to speak of “mini paradigm shifts”. Markets are pricing in the tail risk more realistically: a 6.3 per cent chance of a quarter-point rate rise in 2024 — closer to getting a false positive on a drug test than missing a 37-yard field goal. One good readThis piece, by the aforementioned Nick Megaw, on wonky trading in Nvidia-linked stocks, is a good read for you, and for the securities regulator in your life. FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereDue Diligence — Top stories from the world of corporate finance. Sign up here More

Analysts and shipping executives say they expect costs to fall later this year as companies receive vessels they ordered two to three years ago.After the Houthi militia started attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared by over 300 percent, prompting fears that supply chain disruptions might once again roil the global economy.The Houthis, who are backed by Iran and control northern Yemen, continue to threaten ships, forcing many to take a much longer route around Africa’s southern tip. But there are signs that the world will probably avoid a drawn-out shipping crisis.One reason for the optimism is that a huge number of container ships, ordered two to three years ago, are entering service. Those extra vessels are expected to help shipping companies maintain regular service as their ships travel longer distances. The companies ordered the ships when the extraordinary surge in world trade that occurred during the pandemic created enormous demand for their services.“There’s a lot of available capacity out there, in ports and ships and containers,” said Brian Whitlock, a senior director and analyst at Gartner, a research firm that specializes in logistics.Shipping costs remain elevated, but some analysts expect the robust supply of new ships to push down rates later this year.Before the attacks, ships from Asia would traverse the Red Sea and the Suez Canal, which typically handles an estimated 30 percent of global container traffic, to reach European ports. Now, most go around the Cape of Good Hope, making those trips 20 to 30 percent longer, increasing fuel use and crew costs.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

BEIJING (Reuters) – As the annual meeting of China’s parliament approaches next month, its leaders are facing the greatest pressure in almost a decade to take bold policy decisions that safeguard the economy’s long-term growth potential.The start of the year saw Chinese stocks tumbling to five-year lows on growth concerns and deflation deepening to levels unseen since the global financial crisis, prompting comparisons with the 2015 turmoil that forced policymakers into action.”The last time the Chinese leadership faced this kind of pressure was in 2015,” said Tommy Wu, a senior China economist at Commerzbank (ETR:CBKG), who added, “2024 is a crucial year for China to stabilize the economy.”However, the current situation is a lot more complicated.” China overcame the 2015 crisis by devaluing the yuan and tightening its capital account to prevent outflows, while pouring resources into property and infrastructure, and slashing interest rates by more than 100 basis points. But that policy ammunition is now spent, bent or broken, limiting its options to fix a stuttering economy and find a way out of what threatens to become a self-feeding downward spiral in consumer and investor confidence and economic growth. The property market has been in free fall since 2021 because of a series of defaults among developers after years of overleveraged, bad investments. Infrastructure spending is difficult to sustain because of high levels of local government debt.Further monetary policy easing risks a run on yuan assets due to a yawning interest rate gap with other economies and could exacerbate deflationary pressures as cheap credit flows into China’s industrial complex, ridden with overcapacity.As China’s rubber stamp parliament, the National People’s Congress (NPC), begins its annual meeting on March 5, there has been no indication of major stimulus or a grand reform plan in the making.”It is widely underappreciated how constrained Beijing is at this point, in terms of options to stimulate the economy via fiscal policy, or through more rapid credit growth from banks,” said Logan Wright, a partner at Rhodium Group.”There will be no policy bazookas unveiled at the NPC, in part because China has no good options to maintain growth via its traditional channels.” ‘STUCK BY CHOICE’Fleeing investors have expressed frustration that authorities have not unveiled a clear roadmap to fixing structural issues laid bare last year when the Chinese economy failed to replicate the explosive recovery experienced by other economies after COVID-19.Markets want clear, long-term plans for cleaning up the property sector, restructuring municipal debt, and switching to a more sustainable growth model that relies less on debt-fuelled investment excesses and more on household consumption.The NPC is not the traditional venue for Chinese leaders to declare momentous policy shifts, which are usually reserved for events known as plenums, held by the ruling Communist Party between its once-every-five-year congresses.One such plenum was initially expected in the final months of 2023, and while the meeting could still take place in the near future, the fact that it has not yet been scheduled has deepened investor concerns over policy inaction.At the NPC, Premier Li Qiang is expected to deliver his annual work report and set the year’s economic targets, including steady growth for 2024 at around 5%, and a budget deficit of 3% of gross domestic product.But setting a target similar to last year’s without new policies to redirect resources from infrastructure and manufacturing investment to households runs the risk of hurting confidence, rather than boosting it, analysts say.Fathom Consulting estimates that every additional 10 yuan invested in the Chinese economy today generates 0.2 yuan in output, down from 2.1 yuan in 2002.On the demand front, consumer confidence languishes at record lows more than a year after China ended its COVID lockdowns.”There is a lack of investor confidence and business confidence. But the root cause of this is consumer confidence,” said Joe Peissel, an economic analyst at Trivium China.”The most effective way to deal with this is through reforms that put more cash in consumers’ pockets.”However, (President) Xi Jinping has previously aired an antipathy toward cash transfers or generous social security provision, so this is unlikely.”The rebalancing policies economists and investors are calling for now are steps Xi flagged as early as 2013, but which China never took, resulting in debt levels growing much faster than the economy. Some analysts say policymakers appear to have prioritised social stability and national security over growth sustainability, due to concerns over the disruption engendered by a different development model.That would come about as such measures empower consumers and private businesses at the expense of the government sector.”A big shift now would acknowledge serious long-term mistakes – that’s unlikely,” said Derek Scissors，a specialist in China’s economy at the American Enterprise Institute. “China is stuck, by its own choice.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.When Volkswagen decided more than a decade ago to build a plant in China’s Xinjiang region with Chinese partner, SAIC, the aim was not primarily to sell cars to the local market. It was also to appease Chinese authorities who demanded the joint €170mn investment in return for approving VW’s plans to expand in Guangdong, as someone acquainted with the discussions over the plant recently told me.Now the German auto group is learning the hard way that politically-driven investments have the potential to become hefty financial and reputational risks. The company has been disqualified by Germany’s Union Investment for its sustainable funds after media published claims that forced labour had been used by the joint venture to build a test track in the region. Forced labour has been a feature of the government’s crackdown on the mainly Muslim Uyghur population and other minorities. Human rights groups have estimated that more than 1mn Uyghurs and other Muslims were detained over a period of several years, while thousands have been reported to have been transferred out of the region to work in factories, some supplying global brands.After Handelsblatt published the allegations on the test track, VW announced that it was reviewing the future of its partnership there. VW’s review came just days after BASF revealed it would sell stakes in two Xinjiang chemical plants following separate allegations of human rights abuses involving its joint venture partner. Is it just coincidence that, after years of refusing to disinvest for fear of angering Chinese authorities, two of Germany’s biggest industrial companies are now willing to brave a political backlash by calling into question the future of their investments there? Not likely, according to several people with long experience of working in China. Each company has specific reasons, but it may also be that a rare window of opportunity has opened to exit uncomfortable investments in China — at least for those companies still publicly demonstrating their commitment to the country. This week Beijing reported that in 2023 China attracted the lowest level of foreign direct investment for 30 years. Investor confidence has been shaken by trade tensions with the US, slowing economic growth, a continuing property crisis and industrial overcapacity. In response, the government wants to revive growth by winning foreign investors back. So punishing two of the country’s biggest foreign investors for reviewing or selling insignificant investments in Xinjiang would be the wrong signal to send, says Max Zenglein, chief economist at China consultancy Merics. VW is pouring €5bn into China’s electric vehicle sector, while BASF is spending €10bn on a state of the art chemical plant.“This is a very opportune time to get out,” Zenglein says. “This is a chance for companies to stop saying nothing is going on in Xinjiang.”One executive who has lived and worked in China for more than 20 years also believes that for VW and BASF, at least, the timing is propitious. China “wants the foreign investment. Officials are very explicit about the economic challenge . . . Do you really want to punish those guys that are still pouring money into the economy when everyone is running for the exit?” Meanwhile, it is clear that western regulations demanding clean supply chains are beginning to bite, he adds. Ensuring traceability is difficult in most parts of the world, but particularly in China. VW found this out to great cost. Thousands of its cars have been held up in US customs because the company unwittingly violated the Uyghur Forced Labour Prevention Act when a small supplier used tiny components from Xinjiang. In Germany, companies found to have violated the country’s new supply chain laws, which also ban forced labour, face fines of up to 2 per cent of global turnover. Beijing may hotly deny allegations of human rights violations in Xinjiang. But it also wants foreign investment. Perhaps that means that VW and BASF can finally extricate themselves from Xinjiang without a political backlash. If so, that would be good for their shareholders. It may also encourage other companies to move faster to quit the region. But the departure of two such high profile names could also mean less access to international working conditions, and less scrutiny of operations. “It feels bad,” the executive said. “No one there will care any more if there is forced labour.”[email protected] More

In late 1989, no person better symbolised Japan’s postwar rise to economic superpower than Akio Morita, Sony’s co-founder, who stunned the world with a $3bn acquisition of Columbia Pictures.That same year, an unauthorised English translation of an explosive essay he co-authored, titled “The Japan That Can Say No”, went viral among America’s elite. Citing what he saw as the short-termism of US businesses, Morita warned: “You may never be able to compete with us.”It was a display of arrogance he later regretted, but it brilliantly captured the mood in Japan as its companies and billionaires dominated rankings of the world’s most valuable and richest.On Thursday the Nikkei 225 stock index finally surpassed the level reached 34 years ago. But gone is the sense of euphoria or achievement that was prevalent in 1989, when Japanese exports of cars and televisions soared and a rise in property prices appeared unstoppable.While the world has scrambled to bring inflation under control over the past year, Japan has yet to officially declare an exit from deflation and remains the only country with interest rates below zero. The clearest threat for the US now is the rise of China, while Japan has ceded its edge in consumer electronics and chips to rivals in South Korea and Taiwan.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Back then, policymakers were raising taxes and interest rates to calm everything down, said Jesper Koll, a market commentator who was an economist at Warburg. “Today they are all-in pro-growth, and worried about the risk of deflation returning.”In 1989, Japan was all-in in its bullishness. Today, domestic Japan is not even mildly optimistic.According to a 2022 Nippon Foundation survey of 17-19-year-olds in China, India, the UK, US, South Korea and Japan, young Japanese had by far the lowest percentage (13.9 per cent) who thought the country would improve.While Japan is now attracting global investors, “we should not enjoy it too much”, said Takeshi Niinami, chief executive of drinks group Suntory and chair of the Japan Association of Corporate Executives business lobby. “The yen is cheap and I’m afraid that investors will all of a sudden go and we’re left with an empty field.”EconomyAs the 1980s drew to a close, Tokyo was celebrating a stellar decade during which the economy had grown by an average of 4 per cent a year on the back of soaring stock and property prices.But by the summer of 1989, Kazuo Ueda, the current Bank of Japan governor who was teaching at the University of Tokyo at the time, was already worried. “The recent rise in Japanese shares is a bubble, and it could burst any time,” he warned in a column for the Nikkei newspaper.In May that year, the central bank began raising interest rates to head off inflation, increasing its discount rate from 2.5 per cent to 6 per cent by August 1990. As asset prices collapsed, financial institutions and property developers struggled to get rid of bad loans, triggering a banking crisis. The BoJ began to cut interest rates, and by 1999, inflation was below zero.The Japanese economy entered a long period of stagnation during the 2000s, when the economy grew on average only 0.7 per cent. As mild deflation continued, people stopped believing that prices or wages would go up. Debt has also risen. The IMF expects Japan’s ratio of public debt to gross domestic product to reach 256 per cent in 2024, compared with 65 per cent in 1989.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Today, the economy is at a turning point. The BoJ is preparing to begin its gradual exit from its ultra-loose monetary policy as soon as this spring. More companies are raising prices and labour shortages are contributing to higher wages.In a speech in early February, Shinichi Uchida, the BoJ’s deputy governor, voiced optimism: “We are now facing the opportunity to break out of the mindset and behaviour of the deflationary period.”Still, there is little sense of euphoria. The economy has contracted for two consecutive quarters, with household consumption remaining weak. “I wouldn’t call this a bubble,” said Koji Toda, a fund manager at Resona Asset Management. “And there is still no certainty of overcoming deflation.”BusinessWhen Nippon Steel announced its all-cash $14.9bn takeover bid for US Steel in December, bankers saw the purchase as a sign of the return of Japan’s cash-rich companies to global markets.But if the M&A deals of the 1980s were a demonstration of Japan Inc’s ambitions to take on the world, corporate executives say today’s overseas rush is driven by the need to find new revenue outside their rapidly ageing and shrinking home market.Following a domestic banking crisis and the bankruptcy of Lehman Brothers in 2008, Japanese groups such as Sony, Panasonic and Hitachi entered a long and painful period of restructuring.In 1989 Japanese companies, particularly banks, dominated the global top 10 by market capitalisation. No Japanese companies make the top 10 now.Today, Toyota has risen to become the world’s largest carmaker by sales and the most valuable company in Japan. Sony, which is now more famous for its entertainment business and PlayStation games than the Walkman portable music player, is ranked third while semiconductor equipment maker Tokyo Electron is fifth. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.In 1989, six of the world’s 10 richest people were Japanese. At the top of the list was Yoshiaki Tsutsumi, the former owner of Seibu Railway, whose wealth Forbes estimated at $15bn.Now, only three Japanese people are ranked among the world’s top 100 billionaires, with Tadashi Yanai, founder of Uniqlo owner Fast Retailing, and his family ranked 30th with an estimated net worth of $40bn.In terms of earnings, Japanese companies have emerged from the period of low growth with healthy balance sheets. According to finance ministry data, net profits generated by Japanese non-financial companies increased more than fourfold to ¥74tn ($493bn) from fiscal 1989 to fiscal 2022, while the amount of dividends they paid to shareholders jumped eightfold to ¥32tn during the same period.Decades of deflation and economic stagnation, however, have also sapped the appetite for investment, leaving companies sitting on a massive cash pile of ¥343tn. Roughly half of the companies listed in the top tier of the Tokyo bourse have undervalued stocks, with price-to-book ratios below one, prompting the head of Japan Exchange Group to launch a name-and-shame campaign to pressure businesses to deliver higher valuations.“The current rise in shares does not necessarily reflect the actual strength of Japanese companies,” Masakazu Tokura, chair of Japan’s powerful Keidanren business federation, said at a news conference this month.Japan and the worldIn December 1989, just two weeks before the Nikkei peaked, Yasumichi Morishita spent $100mn on paintings by Vincent van Gogh, Claude Monet, Pierre-Auguste Renoir and Paul Gauguin at New York art auctions. A month earlier, property tycoon Tomonori Tsurumaki made headlines by buying Pablo Picasso’s Les Noces de Pierrette for $51mn.In 1989, the global art market was increasingly in thrall to the power of the yen and the Japanese real estate bubble. The Japanese rush for fine art was symbolic of a country that suddenly wanted — and could afford — to buy everything. Its tourists seemed to be everywhere, and its companies also seemed to be muscling their way into every market or deal. “If you don’t want Japan to buy it, don’t sell it,” remarked Sony co-founder Akio Morita when asked about his company’s purchase of Columbia Pictures.Akio Morita More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.From the way some governments are going about it you’d never believe we live in a world where cross-border trade is increasingly measured in trillions of gigabytes rather than tonnes of grain. Next week in Abu Dhabi, an unpromising World Trade Organization meeting of ministers will witness a familiar yet peculiar situation. A small gang of middle-income countries — India, despite its status as a global software giant, Indonesia and South Africa — are threatening to abrogate a 26-year international moratorium on charging border tariffs on digitally delivered services, which the deal quaintly terms “electronic transmissions”.India and South Africa have threatened for years to end the moratorium. They have also threatened to block separate talks on digital trade among a subset of WTO countries, which also show the 1998 vintage of their origins with the antiquated title “electronic commerce”. Delhi and Pretoria are not even participating in the talks, which in any case are incremental rather than dramatic.In reality, taxing products like video streaming services as they flow through the ether across a notional border seems wildly impractical. But the issue illustrates how the governance of global data and digital flows is far from fulfilling the liberal dreams of internet pioneers.Digital rules are important not just because of trade in goods and services that consist of or rely on international flows of data. They also involve personal privacy, media disinformation, the accountability of tech giants and other issues of great societal importance. But just as with more traditional forms of trade, countries are erecting border barriers, maintaining intractable regulatory differences and holding the issue hostage to other disputes.Of the countries menacing the electronic transmissions moratorium, Indonesia is the only one with serious immediate intent to try imposing border measures. Multinationals concerned about the proposals are hoping that Indonesia will focus instead on its value added tax on the consumption of digital goods and services — which it already levies on hundreds of companies including TikTok, Facebook, Disney and Alibaba. The IMF weighed in recently with helpful suggestions on raising VAT on digital products.By contrast, India’s position is widely regarded as tactical. It has often threatened to end the moratorium to gain leverage in other WTO issues, such as its long-running campaign to subsidise its farmers in the name of building up buffer stocks of grain. The idea of holding a 21st-century industry hostage to a 19th-century one is bizarre, but there you have it. Previously, other countries have largely given India what it wanted for the sake of a quiet life. It’s not yet clear whether they will do so again next week.Other countries, of course, also have idiosyncrasies that hamper the promotion of open digital trade framed by sensible regulation. Thanks to successive rulings of the European Court of Justice about privacy, Brussels is essentially blocked from making broad and binding commitments on allowing free international flows of data in trade deals.Brussels has at least done a lot of thinking and regulating in the areas of personal data (the General Data Protection Regulation), competition and transparency in digital commerce (the Digital Markets Act and Digital Services Act) and most recently artificial intelligence. Those efforts, particularly GDPR, have partially served as a model elsewhere. But they are not perfect: the DMA in particular can credibly be accused of protectionism in effect if not provably in intent.It does not help the cause of regulatory certainty that at a federal level, the US is far behind on writing rules on data protection and AI, meaning it is in a separate sphere of digital governance to the EU. Moreover, the Biden administration recently made a huge about-turn and reversed traditional US support for addressing international data flow in trade deals. There’s a respectable argument for its new position, but the US’s volte-face was so sudden it had to abandon its own negotiating position in the trade part of the Indo-Pacific Economic Framework (IPEF) talks with Asia-Pacific countries, which are now stalled indefinitely. Meanwhile, China continues to enact increasingly invasive laws on personal data and espionage and conduct raids on multiple foreign companies. This atmosphere has led a number of multinationals to decouple their data storage and IT systems in China from the rest of the company.To their credit, some smaller countries including New Zealand, Singapore and Chile, which have created a Digital Economy Partnership Agreement, are trying to design a system that balances free flows of data with protection of personal privacy. But their model has yet to get any big takers.What happens with the moratorium on electronic transmissions next week is in the realm of political grandstanding, not rational decision-making. The degree of unpredictable and self-destructive policy in the area of digital and data trade is concerning. It may be asking the WTO processes too much to expect them to fix it. But until there is coherence and alignment in policy, the global market in data and digital services will remain uncertain and [email protected] More