Political instability jolts Japan

0:04Good morning from the Financial Times. Today is Monday, September 8th, and this is your FT News briefing. France's prime minister faces a pivotal no-confidence vote today, and Japan is searching for new leadership after a series of political setbacks. Plus, we look at the flurry of economic data coming out of the U.S. All of which kind of comes together to paint a pretty bleak picture for the overall state of the U.S. economy, and one that has the potential to worsen in the months ahead. I'm Victoria Craig, and here's the news you need to start your day.

0:44French Prime Minister François Beirut is likely to be ousted in a no-confidence vote today. He's the leader of a fragile minority government and has come under pressure for his efforts to cut the national debt. His ideas have included canning two public holidays, implementing a freeze on most government spending, and raising tax on some pensioners. The government's collapse could be a boost for France's far right and would leave President Emmanuel Macron in a tight spot. He'll be looking for his fifth prime minister in two years and enough stability to pass a budget by the end of this year.

1:24Japan is also experiencing political turmoil. Japanese Prime Minister Shigeru Ishiba said on Sunday he's stepping down. The announcement comes less than a year since he took office and sets up an emergency presidential race within his fractured Liberal Democratic Party. Here to explain what's next for Japan is the FT's Tokyo Bureau Chief, Leo Lewis. Hi, Leo. Hi, Victoria. Hi. So just walk us through this. Why did Ishiwa decide to step down? Was this expected? It had been building for a little while and Monday was due to be a vote within the ruling LDP on whether to hold an emergency presidential party leadership election.

2:07And that would effectively be a vote of no confidence in the prime minister and it would force Ishiba out. And rather than letting that happen, it seems that he's just decided on the advice of some pretty close confidence of his to step down ahead of that. And it clears the way for a straightforward leadership election within the LDP, which will presumably get underway over the next days and weeks. And before we get to that, just take a step back. Why was pressure mounting for Ishiba to step down? So Ishiba has had a pretty difficult almost year as prime minister. He came in himself through a leadership vote within the LDP.

2:49He emerged from that against the expectations of many. And he made the big gamble soon after becoming prime minister of holding a snap general election. The gamble backfired terribly badly. The ruling LDP lost the majority that they had in the lower house of Japan's parliament. Plus then he had the upper house elections, which were a scheduled event in July this year. And the ruling LDP, lo and behold, lost its majority in the upper house as well. and actually some are quite surprised that he managed to last 50 days since that disastrous upper house election. So a leadership contest now underway, what happens next?

3:32It's in the nature of the LDP. The LDP is a big party. Its power in Japan has lasted more or less without long breaks since 1955 and the way that it's done that is by holding together a big diversity of kind of centre to centre right, to right, to conservative and quite right wing views within the party. It's done a good job of holding that all together. That's now sort of crumbling. So the next leader is going to have to be somebody that can pull it all back together. And not only that, they're going to have to take on some of these smaller populist parties that emerged with particular force in that upper house election in July.

4:13by favorites going into this. We think of Sanae Takeichi, who ran against Ishibe in the last leadership, and Shinjilō Koizumi, who's a very young and charismatic minister of agriculture now. But inevitably, there are going to be other figures emerging. There'll be plenty of action as the LDP wrestles with this leadership contest. And big picture, Leo, what does this signal about the political environment in Japan? because Ishiba now joins a fairly long list of prime ministers who have lasted only about a year in office, the exception, of course, being Shinzo Abe, who held office for just shy of a decade.

4:51So Abe really was the exception, and there's certainly a fear that a return to that quick turnover of prime ministers would be a generally destabilizing thing for Japan and for markets that always look for stability and direction from their leader. is the next government in its effort to sort of see off these very populist opposition parties, is it going to have to do a lot of fiscal spending? And that, of course, is another matter of big concern to markets, particularly JGB markets. This really is a very big, jarring moment for Japan. And that's something that a new prime minister is going to have to navigate very carefully or risk just losing another election and lasting a year, which is, of course, the risk for any Japanese prime minister.

5:34Leo Lewis is the FT's Tokyo Bureau chief. Thanks so much, Leo. Thank you very much.

5:45China is preparing to reopen its domestic bond market to major Russian energy companies. If that happens, it'll be the first time Beijing has let Russian groups borrow money on its markets since Moscow's full-scale invasion of Ukraine in 2022. The invasion led Chinese banks to avoid contact with Russian firms, They were worried they might be targeted by secondary sanctions from the U.S. and Europe. But both Russia and China are now looking for workarounds. One option would be to issue debt, often referred to as Panda Bonds, through Russian entities not yet under sanctions.

6:25The U.S. economy may be at a turning point. Friday's jobs report signaled a sharp slowdown in the labor market this summer, prompting concerns over the trajectory of the world's biggest economy. But that's only part of the story. On Thursday, we'll get the latest read on consumer price inflation. These two pieces of data are key for the Federal Reserve when it meets next week to decide its next move on rates. Here to discuss all of this is the FT's U.S. economics correspondent, Miles McCormick. Hey, Miles. Hey, Victoria. So last Friday's data showed just 22 ,000 new jobs in August, far worse than Wall Street's expectation of 75 ,000.

7:04What does all this tell us about the health of the U.S. labor market? So what it suggests is that growth in the labor market is effectively grinding to a halt. 22 ,000 jobs in an economy the size of the U.S.'s is next to nothing. And this is going to be front of mind, along with the inflation numbers, when the U.S. Federal Reserve meets later this month to decide what to do with interest rates. And what sectors are we seeing the slowdown in jobs? The sectors that seem to be being hit most kind of disproportionately are sectors that are most exposed to tariffs and the trade upheaval that we've seen in the U.S.

7:45So you're talking about kind of goods producing sectors. You're talking about manufacturing. You're talking about construction. You're talking about oil and gas. Their prices have been going up and they've just kind of slammed the brakes on hiring. All right. So that's the picture on the jobs market. We've got inflation data on deck this week. Why is that one being so closely watched? So inflation is the other key metric that's being watched by the U.S. Federal Reserve when it kind of weighs whether to take action on interest rates. And remember, there's been huge pressure from Donald Trump to cut rates, which the Fed has so far held off on doing this year.

8:22But the fear or the feeling among many members of the Fed's rate setting committee is that the tariffs that Donald Trump has imposed are going to finally start creeping through to consumer prices. We've seen a slight uptick in recent months, but there is potential that this month could be the one where we see prices increasing substantially. And that's going to make the case quite complicated for them when they go to make a decision on rates, because you've got the labor market on one hand, which would be an argument to cut rates. But then if inflation starts to spike at the same time, that's an argument against cutting rates and just kind of creates a whole headache for the Fed.

9:04Yeah, that dual mandate is throwing up quite the complicating factor here. Miles, is there talk about the possibility of even a jumbo rate cut, something bigger than we might be expecting because of the weakness in the labor market? And if that's the case, how does the Fed square that circle? There is. And this is the interesting thing. So in the wake of the weak jobs numbers we got last week, most folks in the market are now betting that there will be at least a 25 basis point cut. But as you say, some people are now saying they might go for a 50 basis points cut. There's probably going to be a cut of some shape or size, but the scale of it will depend on how bad inflation is in the data that comes out this week.

9:50If we think about all of this data on the whole, how is the U.S. economy faring overall? So there's lots of moving parts. There is the enormous pressure being piled by the president on Fed to cut rates, which is worrying investors, worrying bond markets. At the same time, there's question marks over the tariffs and their legality. And then that comes on top of these broader worries about the jobs market, about inflation, all of which kind of comes together to paint a pretty bleak picture for the overall state of the U.S. economy and one that has the potential to worsen in the months ahead. Miles McCormick is the FT's U.S.

10:32economics correspondent. Thanks, Miles. Thanks, Victoria.

10:42Before we go, if you're a regular listener to this podcast, you'll remember the FT held its annual weekend festival in London over the last couple of days. If you attended, maybe you got to mingle with our own Mark Filipino. If not, don't worry. there were lots of informative but also fascinating forums you can watch on demand, including this one that caught my eye on the peak of peat, why we should be investing in whiskey now. My advice would be, guys, is if you've got a spare 50, 60 pounds at the end of every month and you don't know what to do with it, go and buy yourself a bottle of peat, put it in a cupboard and forget about it, because there will be dinosaurs in a bottle.

11:21It's going to be extinct, whether you like it or not, it's coming. You can access more FT Weekend Festival content and read all of the stories in today's show when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you. corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to Strategic Alternatives, available wherever you get your podcasts. When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market.

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