Will Japan’s next PM revive Abenomics?

0:03Good morning from the Financial Times. Today is Monday, October 6th, and this is your FT News briefing. Hamas and Israel head to another round of negotiations, and Japan is bracing for a new and boundary-breaking prime minister. Plus, can small nuclear reactors help power the AI energy boom? They offer to solve a problem for data centers, which is that they need reliable, clean energy at an affordable price. I'm Victoria Craig, and here's the news you need to start your day.

0:42All eyes are trained on Cairo today, where indirect talks between Israel and Hamas are set to take place. The two sides, with the help of Arab and American negotiators, will get down to brass tacks on President Donald Trump's 20-point plan to end the war in Gaza. Hamas said it's willing to release Israeli hostages and hand over Gaza's governance to a Palestinian committee, but it's not clear whether the militant group will accept disarmament, a key pillar of the plan. Speaking on NBC's Meet the Press, U.S. Secretary of State Marco Rubio said addressing those gaps is key to long-term peace. All that work, that's going to be hard, but that's critical because without that, you're not going to have lasting peace.

1:22You may get the hostages back, you may get a cessation of hostilities, but in the long term, it's going to happen all over again. Pressure for a deal is mounting after Trump said he will, quote, not tolerate delay. Speaking to reporters Sunday, the president said negotiations will probably take a couple of days.

1:42Traders are bracing for what they say could be a volatile week in Japanese financial markets. That's as Sane Takeichi, a hardline nationalist, takes the reins of Japan's ruling Liberal Democratic Party and is set to become the country's first female prime minister. Following victory in her party's leadership contest over the weekend, Takeichi warned, quote, the scenery will change a little. So what is set to change under her prospective premiership? Leo Lewis, the FT's Tokyo bureau chief, is here to break it all down. Hi, Leo. Hello there. So what do we know at this point about Takeichi and her policy priorities for Japan?

2:18So as you mentioned there, she's got about 10 days before she's officially becomes prime minister, and that's the presumption. Her campaign has really focused on the idea that Japanese households have been feeling the strain in Japan. And at the same time, You've got a lot of tourists arriving. Japan's demographic situation means that there has been quite a substantial wave of immigration. You've got a kind of an on edge nation. You've got political leadership that has been fractured and divided for some time. And you've got an economic situation, which is far from ideal. And the priority, I suspect, is going to be on how do you get the households feeling a little bit better about life in Japan?

3:06And do we have a clear picture of her economic strategy? Because we do know that she was a follower of the late former prime minister Shinzo Abe and subscribed to his very famous Abenomics economic strategy. She did more than subscribe. She was a huge cheerleader of this, and she campaigned for the leadership 12 months ago. That was more forthrightly, you know, let's get back to Abenomics as the country remembers it. And so there'd be sort of substantial government spending and she was quite sort of dovish on the central bank should hold back on raising interest rates. During the most recent campaign, so the last few weeks, she's toned some of that down.

3:46And the reason that analysts think that she's been doing that is because she's had to win over parts of the party that were not naturally her supporters. As part of trying to present this more kind of unifying figure, she's toned down some of the evidence. So there is a bit of a mystery about exactly how far she's going to go and how far she's going to push the kind of abinomics sounding policies. And I think that is sort of one of the biggest questions about her premiership is how much of a unifying force can she be? Because the party has been in power for much of the last seven decades, but obviously has faced more recent upheaval.

4:24Is there optimism about how well she can rally people together on all sides of the political spectrum? Frankly, no. I wouldn't say optimism. There is a kind of grim sense that she may be pragmatic enough to make something happen. But the LDP is in a difficult spot at the moment. The party has been a survivor historically. You would in the past have bet on the party finding a way through this. But I think those bets are certainly not placed with the same level of certainty anymore. And Takeuchi herself is not naturally a great unifying figure, although Saturday's vote showed that she does enjoy very wide support within the membership of the party itself.

5:13And President Trump is visiting Tokyo at the end of October. That's going to really be her first test as prime minister. How could that shape at least the beginning of her premiership? The visit by Donald Trump, that is certainly difficult. But the fact that Shinzo Abe, who was her mentor, was himself a sort of Trump whisperer. Some have said he was certainly quite close to Trump amongst foreign leaders. That may play to Takechi's advantage that the association with Abe is a good one for Donald Trump. And the other thing is that the visit by somebody that important on Japanese soil, it creates an opportunity for Takeuchi to look like a leader.

5:59It is a huge challenge. It is trial by fire. But actually, there's a lot of opportunity in there if she plays it right. Plenty for you to watch. The FT's Tokyo Bureau Chief, Leo Lewis. Thanks so much for your time. Thank you so much.

6:18Chinese clothing and textile exports into Europe are surging. They were up 20 percent in the first half of this year compared to the same time last year, according to a European trade group. U.S. tariffs are part of the equation. The Trump administration's double-digit levies on Chinese goods have left Chinese producers scrambling for new markets. But industry experts also say Europe has been slow to respond to the trade environment. The European Commission has proposed new shipping fees to try to cut down on the volume of packages flooding in from discount retailers like Temu and Xi 'an. But the legislation needs member state approval to go into effect.

6:57Policymakers worry Chinese exports could also pour into other tariff-affected sectors like steel.

7:09New data centers have been popping up all across the United States to feed our voracious appetite for AI, but concerns remain about the pace at which these energy-intensive machines hoover up resources. Enter a new kind of nuclear technology. The U.S. government and investors have been plowing billions of dollars into the development of compact nuclear reactors, $9 billion since 2019, to be exact. But will it produce results? The FT's U.S. energy reporter, Martha Muir, has been crunching these numbers. Hi, Martha. Hi, Victoria. So just talk to us about what this technology is exactly and why there's suddenly so much interest from investors.

7:50Yeah, so small modular reactors are nuclear reactors, which generate about 300 megawatts of power each. And to put that in context, that's about a third of the reactors of big utility plants in the country. They offer to solve a problem for data centers, which is that they need reliable, clean energy at an affordable price in order to train and run their AI models. And nuclear is a clean energy and they're able to run a lot more reliably than intermittent power sources like wind and solar. Both Trump and the Biden administration have allocated money to companies in order for them to be able to develop those technologies.

8:30And they're trying to make it easier for them to be tested and licensed, which takes away a lot of the investment risk. So billions and billions is already flowing into it. But how viable is the technology? Opinions on this vary because the upfront capital costs are really, really high. because a lot of the equipment that they have to use has to be imported from overseas like fuel. But then because this technology doesn't exist yet, it's unclear how cheaply exactly they'll be able to sell power for. New Scale is a small modular reactor developer, and it was meant to be building a reactor in collaboration with the Utah Associated Power Systems, a project which was actually cancelled in 2023 after its costs ballooned by more than 120%.

9:14And then the three, SMRs which are operating worldwide, which are in Russia and China, exceeded their original cost estimates by 300 to 400 percent. So clearly cost is one side of the equation. Is this all down to just more investment that's needed in the space or are there other hurdles that these companies need to overcome as well? Yeah, so a lot of these companies will tell you that the problem isn't actually cost. It's the Nuclear Regulatory Commission who impose quite high standards and paperwork and bureaucracy to get their designs approved. And actually, on October the 1st, the NRC cut its fees for licensing nuclear.

9:55So experts are kind of curious as to whether we'll see a further flood of applications now that those costs have been reduced somewhat. So taking all of this into account, what does the longer term future of nuclear energy look like at this point? Do we have a clearer picture? Decades ago, people were very nervous about the idea of both financing, but also just living next door to nuclear plants. And most polls show that people are a lot more accepting of the technology. And that is because, again, as I said, it's a clean power source and it might be able to be done relatively efficiently. At the moment, there isn't consensus quite on how they should be regulated.

10:33But there are major questions about whether they'll be able to bring these costs down to a point where they will be competitive with things that are already on the market, like natural gas, which data centers are already employing. Martha Meera covers U.S. energy for the FT. Thanks for your time, Martha. Thank you.

11:20of U.S. respondents are hoping to pack in more protein. You can read more on that and all of our other juicy stories for free 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.