David Clark | Meta Intelligence

Japan-Watching: Yen Repatriation Starts with the Whale

GPIF, one of the largest national pension funds in the world, is likely to rebalance its assets from non-yen bonds to yen bonds, signaling a big turn in Japan’s cross-border capital flows.

[from Japan Macro Advisors, 10 September, 2026]

Key takeaways

In 2013, GPIF’s investment committee, chaired by UEDA Kazuo [植田和男], now the BoJ governor, saw a fair chance of a JGB crash within five to ten years. Its CEO priced the crash as the 10-year rising from 0.5% to 3%. Subsequently, GPIF cut its target weight for domestic bonds from 60% to 25% as an emergency measure against abnormally low yields.
The 10-year is now at 3%. On my replication of GPIF’s own allocation rule, a real return on JGBs near zero points to a 50% weight in domestic bonds, against 25% today. I expect GPIF to raise the weight, if it has not already started in the September quarter.
How GPIF decides its asset allocation and communicates it publicly is a very delicate and political issue. But regardless of how it communicates it, a change in asset allocation is inevitable. In my view, it signifies a big turn in Japan’s cross-border capital flows.

Japan has one of the Largest Pension Funds in the World

Japan has the second largest public pension fund in the world. Norway’s is the biggest, although it is not strictly a pension fund. Canada’s pension funds, when all eight of its variants are added together, come a close third.

Japan set up its first national pension fund in 1961 and it has since gone through various reforms and reorganization over the last 65 years. Its current form is called the Government Pension Investment Fund (GPIF). As explained in a later section, GPIF has a few siblings, and when we add them together, Japan’s public pension funds can be said to be the largest in the world.

Chart 1

GPIF used to invest most of its asset into JGBs

GPIF used to invest the majority of its fund as loans to the national government and into Japanese government bonds (JGBs). At the end of FY2012, 62% of its assets consisted of domestic bonds. However, in 2014 it went through a radical asset reallocation and the target weight for domestic bonds was reduced from 60% to 35%, and then further down to 25% in 2020. Its current target allocation is a clean four-way 25% split into domestic bonds, domestic equity, foreign equity and foreign bonds.

As one of the largest pension funds in the world, its asset allocations attract market attention and there is speculation that it is about to raise its allocation into domestic bonds. In my view, there is indeed a very high chance that GPIF will be raising its allocation into domestic bonds, if it has not already started to do so in the current quarter ending in September 2026.

Chart 2

UEDA in 2013 Saw a Bond Crash Coming

To understand why GPIF is highly likely to raise its allocation into domestic bonds, we need to go back in history to 2013. Why 2013? Of course, it is the year the Bank of Japan (BoJ) started its massive quantitative easing. The 10-year JGB yield started 2013 at 0.8% and it fell to 0.3% by the end of 2015 before briefly hitting a negative rate of -0.3% in 2016. If you were the chairperson of the GPIF investment committee, you would have been concerned about the wisdom of continuing to invest in JGBs at such a policy-driven low rate. The actual chairperson was UEDA Kazuo [植田和男], the current BoJ governor. In the minutes for October 2013, UEDA said, “I think there is a fair chance that bonds will crash at some point in the next five to ten years [unofficial translation].”

The minutes were released only seven years later; otherwise the use of the word “crash” would have been controversial.

GPIF CEO Priced the Crash at 3% in 2014. We Are There Now

If you read through the GPIF minutes between 2013 and 2014, you would see that GPIF officials were increasingly conscious of the precariousness of investing in JGBs. Long story short, as this process was highly political and a sensitive subject, they decided to radically lower the target allocation weight for JGBs to 35% in 2014, presented it as the result of a philosophical change in the way GPIF is managed and how the concept of “risk” should be considered. Investment in JGBs was no longer considered low risk in real terms. The asset allocation for domestic bonds was further lowered to 25% in 2020. The following is what MITANI Takahiro [三谷隆博], the GPIF CEO at the time and an ex-BoJ senior official, said in the October 2014 GPIF minutes.

“Yields are just under 0.5% now, so a move to near 3% would mean a loss of about ¥25 trillion. (…). So I think the clearest way to explain it is that reducing the weight on JGBs to some degree is simply unavoidable [unofficial translation]”

The 2014 cut in the weight was partly an emergency escape

As I wrote earlier, the radical asset reallocation in 2014 was part a shift in the concept of risk from “nominal” to “real”, so that JGB is no longer risk free assets. But the change was also at least partly an emergency measure to escape the abnormally low-yield environment. Then the next natural question is, now that the JGB yields are no longer abnormally low, what should happen to its asset allocation? Pensions are paid in yen, so long-duration Japanese government bonds are a natural match, while GPIF should also be holding some non-yen assets and equities to diversify its assets and protect the overall balance sheet from inflation. In the next section, I will show you a simplified replication of how GPIF decides its asset allocation and what GPIF’s asset allocation could be now that JGB yields are normal.

How GPIF decides its weights

Put simply, GPIF’s target weights are the output of an optimizer with a few rules. Find the portfolio that, at the required real return, has the smallest average shortfall below wage growth in the years when it falls short, and round it to the nearest 5%.

When GPIF last decided to keep the current 25% weight for domestic bonds in 2025, JGBs were assumed to produce a nominal return of 0.5% against wage growth of 1.3%, so a real return of minus 0.8%. Exhibit 1 shows a simplified matrix of weights depending on expected nominal return on bonds and wage growth. The red box shows the assumption behind the 2025 weights decision mentioned above. If we use a higher wage growth assumption of 2.3%, an expected nominal return of 1.8% on bonds gives a weight of 35%. GPIF’s bond portfolio has an average maturity around 10 years, and the 10-year bond is yielding 3% now. A lot of thought and estimation is needed to form a view on the expected real return on domestic bonds, but in my view, it is clear that the minus 0.8% used in their last review is too low given where bond yields are.

Why GPIF kept the weight in 2025 and why circumstances changed

In late 2024 when the GPIF was reviewing the weight as part of its five-year plan, the BoJ was already in the process of exiting from QE and raising its policy rate. However, the JGB market was still in the process of adjustment and bond yields had a lot of room to rise. For example, the 10-year yield was 0.89% at the end of September 2024, rose to 2% by the end of 2025 and now, in September 2026, stands at 3%. You can understand why GPIF decided to keep its weight on domestic bonds unchanged as it would have incurred capital losses on bond purchases in 2025. But in my view, as I wrote in the report “The Long Climb in JGB Yields Is Nearly Over” [archived PDF], long bond yields are getting closer to a stability point. If the GPIF board shares my view, it is a good time to think about raising its target weight into domestic yen bonds.

The Whale Problem and the Washington Problem

How high should the new weight be for domestic bonds? The reality of determining appropriate weights and how to announce it is a lot harder than the simplified model I explained above. Other than forming a reasonable view on the expected real return on asset classes, there are a few factors that complicate the process.

Firstly, GPIF needs to think about how such an announcement would affect the market. GPIF is what financial market professionals call a whale, a massive investor whose investment decisions sway market prices. There is also a related argument that given the dominance of GPIF in the domestic market, GPIF should be increasing its asset weight abroad to reduce its impact on domestic asset markets.

Secondly, changing asset allocation weights carries political considerations. If GPIF decides to raise the target weight for domestic bonds, foreign bonds are the likely asset class whose weight will go down. More than 50% of its foreign bonds are in US dollars. With all the news circulating in the market now, Scott Bessent will not like a public announcement that one of the largest pension funds in the world is reducing its purchase of US treasuries. There are domestic political considerations as well, as the Takaichi government contemplates how best to fund its deficits.

These are the issues GPIF officials must be debating. How GPIF decides its asset allocation in the near future will be a revealing case study for those who want to study how policy-making works in Japan. Those who are interested in this topic should read the transcripts of an interesting government committee in 2014 that focused on how GPIF could shield itself from political meddling. Guess who chaired the committee? UEDA Kazuo [植田和男].

Whatever the near-term decision GPIF makes regarding its target weight, I think it is fairly clear that GPIF should be increasing its investment into domestic bonds. The following table shows how much GPIF could buy in net terms, depending on the eventual rise in the target weight.

How much GPIF buys: ¥32tn at 35%, ¥80tn at 50%

Domestic Bond Target	GPIF Buys	With the Sister Funds
30%	¥16tn	¥20tn
35%	¥32tn	¥20tn
40%	¥48tn	¥20tn
50%	¥80tn	¥20tn

Additional domestic-bond holdings from re-weighting the fund at 30 June 2026 (managed assets ·317.8tn). Foreign bonds sold first.
Source: GPIF, JMA.

Three things in this table matter for the market. GPIF is allowed to deviate its asset allocation by six points either side of 25% without any announcement, so 39% target is already possible without any public announcement. In 2014 GPIF moved inside its band first and announced the new portfolio afterwards, and I would expect the same sequence this time. Second, these are static figures, which do not account for the growth of the fund over time.

The sister funds move with the whale

As mentioned earlier, GPIF has a few siblings. The Pension Fund Association for Local Government Officials (¥35.5tn), the Federation of National Public Service Personnel Mutual Aid Associations, known as KKR (¥11.5tn), and the Promotion and Mutual Aid Corporation for Private Schools of Japan (¥4.9tn) manage the pension reserves of local government employees, national government employees and private-school teachers. These sisters run their funds on the same 25/25/25/25 model, and with the legacy reserves they also run, they hold a further ¥87tn on top of GPIF’s.

Conclusion

GPIF cut its domestic bond weight from 60% to 35% in 2014, and later to 25%, to safeguard its assets from the manipulated low JGB yields at the time and the eventual crash they foresaw. That crash, as GPIF’s CEO MITANI defined it in 2014, has now happened with the 10-year yield rising to 3%. In my view, JGB yields have largely normalized and there is no emergency reason to avoid domestic bonds. It is only natural that GPIF would raise its allocation into domestic bonds, although how GPIF communicates this publicly is a touchy issue they need to figure out. When GPIF raises its domestic bond allocation, foreign bonds are the likely asset class to take the hit. GPIF publishes quarterly results and the next publication for the end-September 2026 quarter, expected in early November 2026, will be closely watched. Judging from market movements in the last few weeks, the market has started to sense that what I described in this article is already happening and Japanese money is starting to come back to the yen. While it should be characterized as rebalancing, rather than a repatriation, it seems we are observing a big turn in Japanese cross-border capital flows.

Japan’s Deadliest Delicacy Is Getting More Dangerous

Rising sea temperatures are pushing pufferfish species together, spawning hybrids that even specialist chefs cannot safely prepare

[from South China Morning Post]

by Julian Ryall

Japan’s most dangerous delicacy is getting harder to prepare safely as warming seas push different pufferfish species into the same waters, where they are inbreeding to produce hybrids whose lethal toxins are not yet fully understood.

Fugu – the collective Japanese name for several species of edible pufferfish – is prized as much for the danger surrounding its preparation as for its subtle flavour.

Many species contain tetrodotoxin, a powerful neurotoxin with no known antidote that can cause paralysis, respiratory failure and death.

Since 1958, anyone wishing to prepare pufferfish for public consumption has had to obtain a licence first, a process that takes at least two years and defeats roughly two-thirds of those who attempt it.

A restaurateur shows off a “fugu”, or pufferfish, at a restaurant in Shimonoseki, Japan. Photo: AP

Chefs learn to strip out the fish’s liver, ovaries, eyes and skin – tissues where the poison concentrates – with the precision of a brain surgeon and the nerve of a bomb-disposal technician.

But that hard-won expertise is now being undermined by climate-induced interbreeding, as experts say Japan’s coastal waters are heating up at roughly twice the global average rate.

Spotted pufferfish, once largely confined to the Sea of Japan, have spent the past decade steadily pushing northward in search of cooler currents. Some slipped through the Tsugaru Strait – the channel separating Honshu from far northern Hokkaido – where they have met and mated with the region’s native pufferfish species.

The resulting hybrids now make up as much as 40 per cent of local catches, according to a recent study of fish caught off Fukushima and Ibaraki prefectures.

“We started seeing these spotted fugu on the Pacific coast in 2012 as temperatures in the Sea of Japan became too high for them,” said Professor Hiroshi Takahashi of the National Fisheries University in Shimonoseki, Yamaguchi prefecture.

Temperatures in the waters there were “among the fastest rising anywhere in the world”, he told This Week in Asia, adding that the changes in pufferfish had been happening just as fast.

Customers visit a seafood market in Japan’s Fukushima prefecture. Photo: AP

Some spotted pufferfish had ventured down the east coast as far south as Tokyo Bay, Takahashi said, only to be driven north again as those waters also warmed.

Tiger pufferfish had likewise moved north from their usual range to interbreed with common pufferfish in and around Tokyo Bay, he added.

The trouble is not that hybrids are more toxic than their ancestors, it is that nobody yet knows how interbreeding has affected the distribution of toxins.

Each species of pufferfish stores tetrodotoxin in a different combination of organs and Japan’s health ministry has not yet been able to establish which parts of the new hybrids are safe to eat and which are not.

Until it does, the government has banned the sale or consumption of hybrid fugu – but this ban is almost impossible to enforce.

“They are very hard to identify,” said Takahashi, whose team has developed a DNA test capable of distinguishing hybrid fish and hopes to make the technology commercially available to fishermen who currently have no reliable way of screening their catch.

Pufferfish, or “fugu”, sashimi prepared for eating at a restaurant in Japan. Photo: Shutterstock

Fatal attraction

None of this is likely to diminish fugu’s deadly mystique. The dish has been eaten in Japan for centuries, enjoyed despite – or because of – the risks involved.

Every year, new tales emerge of amateur anglers preparing the fish to eat against the advice of anxious relatives and not surviving the attempt.

Diners speak of a faint numbness in the lips as evidence of a narrow escape and the emperor of Japan is barred from eating fugu altogether, lest even a licensed chef makes a mistake.

Urban legend holds that chefs who do poison a customer are honour-bound to end their own life, with their own knife, in atonement – though this is a myth.

For their part, Japanese restaurateurs are, perhaps unsurprisingly, keen to play down the risks.

A spokeswoman for Miyawaki Fugu Club, an upscale restaurant in Tokyo’s Ginza district, said its chef works exclusively with farmed tiger pufferfish from a long-established supplier, which she insisted were “completely safe”.

James Reimer, a professor of marine biology at the University of the Ryukyus, said the fugu phenomenon fit a wider pattern of marine life relocating in response to global warming.

“What happens to marine ecosystems is one of the hot-button issues of the day, particularly in Japan, because the waters here are warming at twice the global average rate,” he said.

During fieldwork off the Izu peninsula, south of Tokyo, three years ago, local fishermen told him that they had lost virtually their entire kelp crop and that the abalone once abundant in those waters had vanished.

A sea turtles in waters off Japan’s Amami Islands. Turtles are increasingly venturing farther north, fishermen say. Photo: Shutterstock

In their place, they said they were seeing far more sea turtles, as well as large schools of brightly coloured fusiliers – the prefectural fish of Okinawa, some 1,400km (870 miles) to the south.

“Last year, our summer in Okinawa was 30 days longer than average, and we had 120 days when the water temperature was around 30 degrees Celsius (86 degrees Fahrenheit),” Reimer said.

He warns that the picture is not simply one of fish and other marine life swimming steadily north in search of more comfortable temperatures, however.

Global warming is also destabilising weather patterns, making them less predictable. Waters off Kyushu, the southernmost of Japan’s main islands, that might otherwise suit certain species are increasingly prone to temperature swings that could make them unsuitable after all.

Even so, the broader direction is unmistakable. Kyushu’s waters have seen a marked rise in shark sightings in recent years, including large tiger sharks – one more sign of the changes occurring beneath the surface of Japan’s seas.

Rail Congestion Edges Up in Japan, but Far from Pre-Pandemic Levels

[from Nippon.com, August 24, 2026]

Rail congestion rose again in Japan [日本]’s major cities in fiscal 2025, but trains are still far less packed than they were before the pandemic.

Slight Rise in Tokyo

A report from the Ministry of Land, Infrastructure, Transport and Tourism [国土交通省] showed that the rail congestion rate in the Tokyo [東京都] metropolitan area rose slightly in fiscal 2025, but still remains low compared with before the pandemic.

The average rate of congestion during peak morning hours for the Tokyo [東京都], Osaka [大阪市], and Nagoya [名古屋市] metropolitan areas was 143% (up 4 points year on year), 117% (up 1 point), and 126% (no change), respectively. After plunging in fiscal 2020 due to the pandemic, and remaining flat the following year, congestion rates have been rising since fiscal 2022.

The graph below shows the changes in rate of congestion and train capacity for 31 major train lines in the Tokyo metropolitan area. Before the pandemic, the rate was above 160%, but now it is around 20 points lower.

A congestion rate of 143%, or 43% more than the standard capacity, is characterized by a situation where passengers are able to either sit down, hold on to a strap, or hold on to a bar near the train door, but there is almost no direct physical contact with other riders.

On the most crowded lines, congestion rates in the Tokyo metropolitan area prior to the pandemic were close to 200%, a level at which there is considerable body contact and people near the doors are unable to move. However, the congestion rates for such lines in fiscal 2025 were much lower.

Data Sources

Data on train congestion in fiscal 2025 (Japanese) from the Ministry of Land, Infrastructure, Transport and Tourism [国土交通省].

(Translated from Japanese.)

Japan-Watching: Still Dreaming: Kon Satoshi’s “Paprika” and Other Visions

by Miyamoto Yūko [宮本裕子]

Anime (アニメ) director KON Satoshi (今敏) died in 2010 at the age of 46, but his works remain highly influential. His final film Paprika, released 20 years ago, highlights his preoccupations with the divided self and the blurring of the lines between dreams and reality.

Dream Analysis

After starting out as a manga artist in 1985, KON Satoshi [今敏] honed his skills in the anime production teams of OSHII Mamoru [押井守] and ŌTOMO Katsuhiro [大友克洋], and then made his feature-length direction debut with Perfect Blue, which was released in Japan in 1998. His fourth feature, the 2006 Paprika, is an adaptation of the novel of the same name by TSUTSUI Yasutaka [筒井康隆]. Kon was public in his admiration of the book and he is said to have aimed to produce “something like the novel Paprika” in his previous anime. Indeed, Kon’s Paprika adaptation has many factors in common with his earlier works.

KON Satoshi [今敏] in Venice in September 2006, when Paprika was showing in competition at the Venice International Film Festival. (© Reuters)

Tsutsui studied psychology at university, and motifs and ideas from Freudian and Jungian psychoanalysis feature regularly in his novels. Dream analysis plays a central role in the story in Paprika. In psychoanalysis, psychologically repressed material is thought to be banished to the unconscious before emerging in a different form in dreams. Analysis of dreams has been seen as a valuable way of resolving psychological problems by bringing the repressed matter into the open.

Paprika is set in a near-future Japan, where it is possible to monitor other people’s dreams on a screen. The main character is a therapist called Chiba Atsuko, who provides treatment via her alter ego Paprika, a dream detective. The technology is abused, however, forcing people to experience nightmares, and eventually these flood into the real world.

While Kon follows the broad outline of the original work, his adaptation incorporates numerous changes. The biggest of these is the chaotic parade of electronic goods, beckoning cats (“maneki-neko” [招き猫]), Buddhist statues, torii gates [鳥居], and other marching objects. This symbolizes nightmares spilling out of control, but there is nothing like it in Tsutsui’s book. Kon explained that the parade is made up of old-fashioned appliances and forgotten religious and traditional elements.

In Freud’s The Uncanny, he describes the titular subject as something familiar that has been estranged through repression. In the film, the members of the parade have become estranged from the conscious minds of people today, but are resurrected, and symbolize the uncanny nature of nightmares.

Integrating the Self

Alongside its Freudian elements, Kon’s Paprika shows Jungian influences. Carl Jung did not think that it was best to bring repressed aspects of the psyche under control, instead emphasizing the importance of integrating them into the self. This integration process can be seen in several of the characters.

While Konakawa, a character suffering from anxiety issues, searches through his dreams together with Paprika, he realizes that a mysterious person he repeatedly encounters is an old friend with whom he once shared the ambition of becoming a film director. This friend, who died of illness, appears in Konakawa’s dreams as his other self—the one who wanted to be a director. Konakawa overcomes his anxiety by recognizing and reconciliating with the repressed and forgotten self, represented by his old friend.

The division and antagonism between Chiba Atsuko and her alter ego Paprika are similar to those seen between Konakawa and his old friend. In the original book, Paprika was Chiba in disguise as a dream detective, but in Kon’s anime, they are like entirely different characters. In the finale, when dreams are flooding into the real world, they divide completely, existing at the same time in the same space. After this split, Chiba comes together again temporarily with the uninhibited Paprika when she no longer holds back her suppressed love for her colleague Tokita Kōsaku.

Chiba and Paprika do not divide in Tsutsui’s novel, and Konakawa’s old friend does not represent another self. This aspect of the divided self, added by Kon during the adaptation process, can be taken as a Jungian motif.

Books by the late KAWAI Hayao [河合隼雄], renowned as a Jungian psychologist, were widely read in Japan from the 1980s until the 1990s, and Kon was among his readers. He is said to have become an avid reader of the psychologist for a time because he wanted to understand the music and lyrics of HIRASAWA Susumu (平沢進), the former vocalist of the techno-pop band P-Model, who was influenced by Kawai. Hirasawa later created soundtracks for anime by Kon, including Paprika.

Kon also stated that he was influenced by the novels of MURAKAMI Haruki (村上春樹), who himself developed a friendly relationship with Kawai through interviews and other encounters. Kon is said to have claimed that he was the only person who could adapt A Wild Sheep Chase [羊をめぐる冒険] and The Wind-Up Bird Chronicle [ねじまき鳥クロニクル] to anime.

Kon’s Themes

The anime Paprika could be seen as a later stage in the Kawai-led Jungian psychology boom in Japan, as well as a culmination of Kon’s characteristic themes. For example, the following aspects regularly appear in Kon’s work.

First, there is the depiction of another self. These include Chiba and Paprika in Paprika, Chiyoko and the old woman who appears at key moments and symbolizes Chiyoko’s future self in Millennium Actress (2002), and idol-turned-actress Mima and the apparition of her former pop star self in Perfect Blue.

Second, there are departures from heterosexual norms. In Paprika, the title character announces the wedding of Tokita and Chiba, which maintains the existence of this free-spirited “dream detective,” so that the film deviates subtly from the typical closed ending of heterosexual marriage. The ending of Millennium Actress suggests that Chiyoko’s long search for an artist she meets in her youth is her goal in itself, rather than a romantic relationship with him. In Tokyo Godfathers [東京ゴッドファーザーズ] (2003), alongside a caricatured depiction of a transgender character, we see the struggles of heterosexual couples and their families.

The third aspect is how media and technology blur the lines between reality and the unreal world. In Paprika, the DC Mini device erodes the boundary between reality and the dreams it is used to view, while Mima’s double in Perfect Blue appears in mirrors, PC monitors, and internet browsers. In Millennium Actress, Chiyoko’s acting roles are intertwined with her real life. In Kon’s anime series Paranoia Agent [妄想代理人] (2004), rumors transform into reality through the actions of the mass media and the characters, who in themselves are a kind of media commodity.

During a scene in Paprika when Konakawa goes to the movie theater, posters for Kon’s other films are on display. This shot shows Millennium Actress and Perfect Blue. (© 2006 Madhouse/Sony Pictures Entertainment Japan, Inc.)

Robot Adventure?

While there are clearly repeating themes in Kon’s works, Dreaming Machine [夢みる機械], which remains unfinished due to his sudden death from cancer, shows signs of an apparent major change of course. At one point it was announced that another director would complete the movie, but the producer later backtracked, saying that there was no director capable of realizing Kon’s vision.

Based on the remaining materials, this appeared set to be an action-adventure story about robots hunting down precious electricity in a near-future setting when humans are extinct. Paprika was also set in the near future, but Dreaming Machine features more overtly futuristic urban landscapes. The main characters are smaller, cartoonish robots, compared with the relatively tall humans of Kon’s other films. While it seems to have been aiming for a different kind of movie in terms of both content and visuals, was this really going to be a standard adventure story, without any twists?

Kon said that one of his influences was the manga [漫画] creator MOROHOSHI Daijirō (諸星大二郎). In a short 1974 work by Morohoshi, also called “Dreaming Machine” (“Yume miru kikai [夢みる機械]”), robots go about their daily lives in the place of humans, who dream in a form of suspended animation. Kon’s unpublished 1984 manga Toriko covered similar ground. Can it be simple coincidence that his unfinished work has the same title as Morohoshi’s manga?

Beyond what looks on the surface like a robot action adventure, in Dreaming Machine, Kon may have planned to depict a world of cryofrozen, dreaming humans. Or perhaps the robots were intended to be controlled consciously or subconsciously by humans. This is pure speculation, but I cannot help thinking that Kon may have intended to continue his theme of technology blurring the boundaries between dreams, or fantasy, and reality.

Some people may consider it unproductive to imagine what Kon’s works may have been, but this imaginative act helps carry his vision forward. Kon’s direct and indirect influence can be found in films like Darren Aronofsky’s Requiem for a Dream (2000) and Black Swan (2010), Christopher Nolan’s Inception (2010), and Edgar Wright’s Last Night in Soho (2021). While we will never see another KON Satoshi (今敏) film, his vision lives on.

Japan-Watching: Economics in the Age of AI

A Thought Experiment Envisioning A “Fully Automated Society”

from REITI, by IKEUCHI Kenta [池内健太], Senior Fellow (Policy Economist)

In a world where human labor has become unnecessary because of AI, what should be the focus of the study of economics? In the future, if AI and robots have become capable of producing all goods and services necessary for our society, what kind of economic problems could remain?

Of course, a fully automated society is not predicted for the near future. This article imagines such an extreme type of society as a thought experiment designed to consider economic systems in the age of AI. Here, a fully automated society refers not only to one in which corporate production is automated, but also to one in which the legislative, administrative, and judicial functions of government are substantially supported—and in some cases automated—by AI.

I started thinking about this matter when I heard from a researcher acquaintance that a paper concerning AI’s impact on employment had caused quite a stir on X, and I decided to read it out of curiosity. The paper discussed the possibility that AI-driven job cuts could reduce workers’ incomes, weaken consumer demand, and ultimately backfire on firms themselves (Falk and Tsoukalas 2026). Companies may earn higher profits in the short term by taking advantage of AI to cut back on personnel costs. However, if most companies follow that same approach, overall market demand would weaken because workers are also consumers.

The purpose of this article is not to question the validity of that paper’s argument. Rather, the focus is on what economic problems would remain in a future society if AI not only partially replaces human labor but also produces most goods and services.

Scarcity Will Continue to Be a Problem

There has already been extensive research regarding the impact of AI on employment. For example, Acemoğlu and Restrepo (2019) argued that while automation may replace existing human jobs, it may also create new ones. Moreover, the possibility that technological advances could free humans from labor and greatly alleviate economic problems was discussed long ago by Keynes (1930).

If AI and robots become capable of producing goods and services on a sufficiently large scale, would economic problems disappear? That would not necessarily be the case. Even in a fully automated society, scarce resources such as land, location, natural environments, energy, and rare metals will remain limited. Moreover, social status, influence, and political decision-making power are deeply connected to human intentions and perception, and cannot simply be delegated to AI. More land will not become available simply because more people wish to live in convenient urban locations. Quiet natural environments, advanced healthcare resources, social attention, and political influence also cannot be maximized for everyone at the same time.

Therefore, even in a fully automated society, some economic problems will remain. However, the main focus will shift from the “problem of insufficient ordinary commodities” to “how to allocate fundamentally scarce resources.” As production capacity increases, the value of true scarcity only becomes clearer.

In that case, the roles of markets and prices will still exist. Prices are not merely figures that allow for corporate earnings; they convey information about which resources are scarce and to what extent, how much demand there is for those resources, and what supply constraints there are. That perspective connects to a classic argument made by Hayek (1945), who argued that prices function as a mechanism through which dispersed information can be aggregated.

However, if AI becomes deeply integrated into the market, the concept of price itself may change. At present, prices serve as one-dimensional signals representing the levels of various factors, such as scarcity, quality, demand, supply, environmental impact, and future risks, expressed in terms of a single metric, that is, monetary value. If AI agents become capable of processing large volumes of information on behalf of consumers and companies, it is possible that multi-dimensional market signals that convey information concerning all those various factors, including quality, environmental impact, congestion, delivery time, reliability and social impact may come into use. Narita (2025) also discussed the possibility that the roles of money and prices may change, with more diverse evaluation standards becoming involved in economic coordination.

For People to Enjoy Affluence

In a fully automated society, how people participate in the market and society will become more important than ever. If the premise that people earn income through labor becomes obsolete, it will be necessary to develop a mechanism whereby purchasing power is distributed to everyone. In this context, universal basic income (UBI) may be reframed not only as relief for the unemployed, but as a form of fundamental purchasing power used by people to express their preferences. Managi [馬奈木俊介] (2025) also pointed out that governance over the equitable distribution of the benefits of AI is essential.

Moreover, UBI may not be limited to simple monetary payments. In the future, UBI may take the form of a system combining other benefits as well, including energy use quotas, rights of access to basic healthcare services and education, and rights to refuse or control the use of personal data. In a fully automated society, UBI would therefore be a matter not only of how much to provide, but also of what kinds of access to guarantee and over what time horizon.

Another important issue is whether it is appropriate to treat people merely as consumers. In a fully automated society, the need for people to work for a living may diminish. However, even without such a necessity, humans will likely still possess the desire to create or to be creative. It is human nature to try new things and to try to surprise or impress other people. The spirit of fun and curiosity, a desire for self-expression, an inquisitive mind, and an appetite for challenges are deeply and fundamentally connected to human nature. Therefore, when designing a future UBI system, it will be important to treat people not merely as consumers but as agents who can participate in creation and exploration.

Additionally, the question of who owns and controls AI systems, robots, foundation models, and computing infrastructure is also a major issue. Even if a certain level of income is distributed to everyone, there may remain a power gap between those who control AI systems and robots and those who merely have access to them, in place of the income gap that currently exists in society.

All of the above-mentioned points for debate are relevant to the study of economics. How scarce resources should be allocated, how to guarantee people’s range of choices, and how to design ownership and controlling rights are problems central to economics. A fully automated society is not a near-future prediction. However, this extreme thought experiment serves as a useful guide for considering economic systems in the age of AI. Economics in the age of AI is not about discarding the intellectual legacy of economics, but about inheriting it and extending it toward a new society.

References

Acemoğlu, D. and Restrepo, P. (2019) “Automation and New Tasks” [archived PDF], Journal of Economic Perspectives, 33(2), 3–30.
Falk, B. H. and Tsoukalas, G. (2026) “The AI Layoff Trap” [archived PDF], arXiv preprint, arXiv:2603.20617.
Hayek, F. A. (1945) “The Use of Knowledge in Society” [archived PDF], American Economic Review, 35(4), 519–530.
Keynes, J. M. (1930) “Economic Possibilities for our Grandchildren” in Essays in Persuasion.
Narita, Y. [成田悠輔] (2025) Nijyu-ni Seiki no Shihon Shugi: Yagate Okane wa Zetsumetus Suru [22世紀の資本主義：やがてお金は絶滅する] (Capitalism of the 22nd Century), Bunshun Shinsho [文春新書].
Managi, S. [馬奈木俊介] (2025) “The Future of Social Science of AI,” RIETI Column.

June 12, 2026

Economics-Watching: Bank of Japan Updates (June 25th)

[from the Bank of Japan (日本銀行), June 25, 2026]

Economic Activity, Prices, and Monetary Policy in Japan

Speech at a Meeting with Local Leaders in Hyogo

TAMURA Naoki [田村直樹], Member of the Policy Board, June 25, 2026

Read the full translated speech [Archived PDF]

Flow of Funds Accounts (Retroactive Revision and 1st Quarter 2026, Preliminary Figures)

The Bank released the following data today.

Flow of Funds Accounts (1st Quarter 2026, Preliminary Figures) [Archived PDF]
Basic Figures of the Flow of Funds (1st Quarter 2026) [Archived PDF]

The Overview of Japan, US, and the Euro area is renewed once a year after the Flow of Funds Accounts is released in June.

The Bank of Japan retroactively revises data for the Flow of Funds Accounts (FFA), in principle once a year, to reflect information updates, such as newly obtained source data and institutional changes, and to incorporate revised estimation methods. The retroactive revision of 2026 was implemented on June 25 and data from the first quarter of 2005 onward has been updated accordingly. The majority of the revision contents are unchanged from the Planned Retroactive Revision to the Flow of Funds Accounts [Archived PDF] released on May 25, 2026.

To download the retroactively revised data, please use the BOJ Time-Series Data Search.

Monthly Report on the Services Producer Price Index

Read the full May report [Archived PDF]

Updates to the Bank of Japan’s statistical data are available at BOJ Time-Series Data Search.

Japan-Watching: Ministry of Finance, Japan

Preliminary determination of Anti-Dumping Duty Investigation of Nickel-added cold-rolled stainless steel coil, sheet, and strip originating in the People’s Republic of China and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu

Upon receipt of an application from NIPPON STEEL CORPORATION [日本製鉄株式会社], Nippon Yakin Kogyo Co., Ltd. [日本冶金工業株式会社], NAS Stainless Steel Strip MFG. Co., Ltd. [ナス鋼帯株式会社の画像] and NIPPON KINZOKU CO., LTD. [日本金属株式会社] on May 12, 2025, the Ministry of Finance (MOF) [財務省] and the Ministry of Economy, Trade and Industry (METI) [経済産業省] began conducting an investigation since July 22, 2025, to determine whether or not to impose an anti-dumping duty on Nickel-added cold-rolled stainless-steel coil, sheet, and strip^a originating in the People’s Republic of China^b and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu.
1. Note: An alloy steel containing 10.5% or more of chromium and containing by weight more than 0.6% nickel. The characteristics of this product are that it combines corrosion resistance, the functionality of steel, and a beautiful and clean design by manufacturing methods. Also, it is used in various fields of demand.
2. Note: Excluding the regions of Hong Kong and Macau.
MOF and METI have explored objective evidence collected from interested parties, including suppliers in the People’s Republic of China and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu, providing opportunities for them to present evidence and to express their views. As a result, MOF and METI today made a preliminary determination in the anti-dumping investigation of the product, presuming the fact of the importation of the dumped product and the fact of the material injury to the domestic industry caused by such importation. (Public Notice on June 19, 2026)

MOF and METI will continue the investigation in accordance with the provisions of the international rules under the WTO Agreements and related domestic laws and regulations, providing the interested parties with an appropriate opportunity to present evidence and express their views relating to the preliminary determination.

Following the further investigation, the Government of Japan will determine whether or not the product has been imported into Japan at dumped prices and if such dumped imports have caused material injury to the domestic industry, and make a decision whether or not to impose a definitive anti-dumping duty on the product.

The interim report on preliminary determination offers details of the investigation.

Reference

Public Notice on June 19, 2026 [Archived PDF]

Interim report on preliminary determination [Archived PDF]

[Provisional Translation, June 19, 2026, Ministry of Finance, Ministry of Economy, Trade and Industry]

Extension of the Period of Investigation of Nickel-added cold-rolled stainless steel coil, sheet and strip originating in the People’s Republic of China and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu

With regard to the Anti-Dumping Duty Investigation on Nickel-added cold-rolled stainless-steel coil, sheet, and strip^a originating in the People’s Republic of China^b and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu, the Ministry of Finance (MOF) [財務省] and the Ministry of Economy, Trade and Industry (METI) [経済産業省] have decided to extend the period of investigation by three months until September 21, 2026. The purpose of this extension is to carefully review the evidence and relevant documents submitted by interested parties, while ensuring full transparency and fairness throughout the investigation process.
1. Note: An alloy steel containing 10.5% or more of chromium and containing by weight more than 0.6% nickel. The characteristics of this product are that it combines corrosion resistance, the functionality of steel, and a beautiful and clean design by manufacturing methods. Also, it is used in various fields of demand.
2. Note: Excluding the regions of Hong Kong, China, and Macau, China.
MOF and METI have been conducting the investigation since July 22, 2025. The investigation was to be concluded within one year, but the period can be extended by six months at most if it is found necessary for special reasons.

Reference

Notice of the Ministry of Finance Relating to the Extension of the Period of Investigation (No. 178, June 19, 2026) [Archived PDF]

[Provisional Translation, June 19, 2026, Ministry of Finance, Ministry of Economy, Trade and Industry]

Issues Re-opened through Liquidity Enhancement Auction on June 19, 2026

Securities	Issue Numbers	Re-opened Amounts (billion yen face value)
10-Year	363	133.7
10-Year	364	8.4
10-Year	365	34.8
10-Year	369	27.7
10-Year	370	48.9
20-Year	128	75.1
20-Year	129	110.6
20-Year	132	9.0
20-Year	133	2.5
20-Year	136	4.9
20-Year	142	16.0
20-Year	143	6.8
20-Year	153	2.0
20-Year	154	9.9
20-Year	159	0.7
30-Year	6	5.0
30-Year	7	0.1
30-Year	13	5.0
30-Year	14	0.1
30-Year	15	14.1
30-Year	16	0.2
30-Year	17	25.6
30-Year	19	4.9
30-Year	20	53.0
30-Year	23	8.6
30-Year	24	32.4
30-Year	26	8.9

Result of Liquidity Enhancement Auction on June 19, 2026 (For JGB Market Special Participants)

Auction Date	Issue Date	Amounts of Competitive Bids (billion yen)	Amounts of Bids Accepted (billion yen)	Highest Accepted Spread^*	Allotment for Bids at the Highest Accepted Spread	Average Accepted Spread^*
6/19	6/22	1,897.8	648.9	+0.020%	98.6666%	+0.016%

Note

These columns indicate the spreads from the reference rate.

Auction Result of Treasury Discount Bills on June 19, 2026

Issue Number	Auction Date	Issue Date	Maturity Date	Amounts of Compet. Bids (billion yen)	Amounts of Bids Accepted (billion yen)	Lowest Accepted Price (per 100 yen)	Yield at the Lowest Accepted Price	Allotment for Bids at the Lowest Accepted Price	Weighted Average Price (per 100 yen)	Yield at the Average Price	Amounts of Non-price compet. Auction Ⅰ^* (billion yen)
1389	6/19	6/22	9/24	9,637.50	3,150.38	99.7630	0.9224%	79.2411%	99.7660	0.9107%	949.60

Note

For JGB Market Special Participants.

Interest Rate (June 2026)

Date	1Y	2Y	3Y	4Y	5Y	6Y	7Y	8Y	9Y	10Y	15Y	20Y	25Y	30Y	40Y
6/1	1.123%	1.4%	1.558%	1.775%	1.948%	2.094%	2.243%	2.397%	2.538%	2.682%	3.225%	3.567%	3.871%	3.863%	3.8%
6/2	1.114%	1.38%	1.522%	1.722%	1.889%	2.019%	2.157%	2.31%	2.447%	2.577%	3.141%	3.493%	3.801%	3.81%	3.742%
6/3	1.126%	1.401%	1.56%	1.767%	1.943%	2.077%	2.219%	2.373%	2.508%	2.645%	3.183%	3.521%	3.817%	3.817%	3.748%
6/4	1.148%	1.417%	1.579%	1.787%	1.966%	2.105%	2.242%	2.395%	2.535%	2.671%	3.225%	3.554%	3.835%	3.833%	3.749%
6/5	1.14%	1.412%	1.574%	1.778%	1.955%	2.096%	2.233%	2.391%	2.532%	2.669%	3.222%	3.551%	3.838%	3.841%	3.753%
6/8	1.144%	1.42%	1.588%	1.793%	1.978%	2.128%	2.274%	2.432%	2.575%	2.715%	3.269%	3.604%	3.878%	3.876%	3.789%
6/9	1.146%	1.42%	1.582%	1.784%	1.962%	2.101%	2.242%	2.398%	2.537%	2.669%	3.217%	3.543%	3.824%	3.823%	3.759%
6/10%	1.147%	1.426%	1.594%	1.796%	1.971%	2.112%	2.257%	2.412%	2.549%	2.681%	3.218%	3.538%	3.806%	3.811%	3.739%
6/11	1.149%	1.427%	1.592%	1.792%	1.963%	2.108%	2.258%	2.411%	2.551%	2.682%	3.23%	3.554%	3.821%	3.823%	3.774%
6/12	1.15%	1.417%	1.579%	1.772%	1.938%	2.077%	2.218%	2.373%	2.511%	2.643%	3.189%	3.508%	3.77%	3.767%	3.713%
6/15	1.141%	1.409%	1.556%	1.743%	1.901%	2.039%	2.175%	2.322%	2.46%	2.589%	3.143%	3.461%	3.73%	3.725%	3.674%
6/16	1.147%	1.414%	1.585%	1.783%	1.945%	2.084%	2.227%	2.382%	2.522%	2.655%	3.206%	3.52%	3.763%	3.747%	3.692%
6/17	1.139%	1.398%	1.552%	1.745%	1.897%	2.034%	2.182%	2.335%	2.479%	2.613%	3.17%	3.49%	3.741%	3.709%	3.654%
6/18	1.146%	1.4%	1.553%	1.746%	1.898%	2.045%	2.193%	2.353%	2.497%	2.628%	3.19%	3.512%	3.765%	3.737%	3.68%

Treasury Discount Bills to Be Auctioned on June 26, 2026

1. Auction Date:	June 26, 2026
2. Issue Date:	June 29, 2026
3. Maturity Date:	September 28, 2026
4. Offering Amount:	About 4,100 billion yen
5. Others:	The above offering amount may be changed. In such a case, the revised amount will be announced on the day before the auction date.

[Provisional Translation, June 19, 2026, Ministry of Finance]

Japan-Watching: Ministry of Foreign Affairs of Japan

First Meeting of the Study Group on Strengthening Japan-Africa Economic Partnership

At TICAD 9 held last August, Mr. ISHIBA Shigeru (石破茂), then Prime Minister of Japan, announced the establishment of the “Study Group on Strengthening Japan–Africa Economic Partnership” as one of the concrete initiatives of the Japanese Government’s policy on Africa. The first meeting of this study group is scheduled for June 18 in a hybrid format.

Under the framework of a “Free and Open Indo-Pacific (FOIP)”, this study group will address African economic integration, a top priority for the African Union (AU). Through strengthening economic cooperation between Japan and Africa, the study group aims to support business expansion of Japanese companies in the African market. To this end, the study group will discuss various topics including measures to promote regional economic integration in Africa, review of trade and investment between Japan and Africa, and the strengthening of economic relations between Japan and Africa. The study group will prepare a report by the end of the fiscal year 2027, which will be submitted to the Minister for Foreign Affairs.

(Reference 1) Japanese Members

Prof. WATANABE Yorizumi (渡邊頼純), Professor Emeritus, Keio University; Dr. KIMURA Fukunari (木村福成), President, JETRO Asian Economic Research Institute; Mr. FUJITA Ryoji (藤田亮二), Executive Officer, Toyota Tsusho Corporation (Representative from Keidanren); WATANABE Tatsuro (渡邉達郎), Managing Executive Officer, Mitsui O.S.K. Lines (Representative from Keizai Doyukai); IGARASHI Katsuya (五十嵐克也), Director and Head of International Department, the Japan Chamber of Commerce and Industry; and representatives from the Ministry of Foreign Affairs, Ministry of Finance, Ministry of Agriculture, Forestry and Fisheries, and Ministry of Economy, Trade and Industry.

(Reference 2) African Members

Mr. Lacina Koné, Director General and CEO, Smart Africa Alliance; Mr. Kulekani Mathe, CEO, Business Unity South Africa (BUSA); Dr. E. Olawale Ogunkola, Professor of Economics, University of Ibadan, Nigeria; and representatives from the United Nations Economic Commission for Africa (UNECA), the African Continental Free Trade Area (AfCFTA) Secretariat, and the African Union Commission (AUC).

(Note) In addition, relevant Ministries, agencies, and individuals with expertise are expected to attend depending on the agenda.

(Reference 3) Attachment

Establishment of the Study Group on Strengthening Japan-Africa Economic Partnership [Archived PDF]

G7 Evian Summit

Working Session on “Reviving a Balanced, Shared and Sustainable Economic Growth”

On June 17, commencing at 10:30 a.m. (local time. 5:30 p.m. on June 17, Japan time.) for approximately 120 minutes, Ms. TAKAICHI Sanae (高市早苗), Prime Minister of Japan, attended the G7 Evian Summit Working Session on “Reviving balanced, inclusive, and sustainable economic growth for the benefit of all”. The overview of the session is as follows.

Prime Minister TAKAICHI stated that the G7 and like-minded countries should maintain close communication to reduce uncertainty in the global economy.
Prime Minister TAKAICHI also stated that it is a common challenge for many countries to promote self-sustaining growth, by addressing non-market policies and practices (NMPPs) and the resulting excess capacity which are drivers of widening global imbalances.
Furthermore, Prime Minister TAKAICHI stated that G7 members and the countries participating in this session should also demonstrate their contribution to reducing imbalances for their own balanced growth as well as for the stability of the global economy and financial markets. Prime Minister TAKAICHI added that making use of data-driven, objective analyses and policy advice by the IMF and the OECD is extremely beneficial in advancing these efforts.
Prime Minister TAKAICHI expressed her hope that the G7 and like-minded countries would lead the global economy through frank discussions. She also stated that she looked forward to discussions at the G20, chaired by President Donald Trump of the United States, on reducing uncertainty in the global economy and becoming stronger and more prosperous together.

Situation in Iran (Signing of a Memorandum of Understanding between the United States and Iran)

(Message from Foreign Minister MOTEGI Toshimitsu [茂木敏充])

On June 18 (Japan Standard Time), the United States and Iran signed a Memorandum of Understanding and the cessation of hostilities was declared. Japan once again welcomes the fruition of the diplomatic efforts made by the parties as well as the countries that played a role in mediation.

Hereafter, it is important that free and safe navigation through the Strait of Hormuz is swiftly reestablished through the steady implementation of this MoU by all parties. Japan also considers it of critical importance that vessels be able to transit the Strait of Hormuz without being subject to additional costs, as has been the case thus far.

Japan strongly hopes that a final agreement on matters such as Iran’s nuclear issue will be achieved as soon as possible through further negotiations between the United States and Iran. Japan will also support the peaceful resolution of the Iranian nuclear issue including through coordination with the International Atomic Energy Agency (IAEA).

After the conclusion of a final agreement, Japan intends to play an active role in the reconstruction and recovery of the region. Japan will also continue to make every diplomatic effort, in close coordination with the international community, toward the realization of peace and stability throughout the Middle East region.

Parliamentary Vice-Minister for Foreign Affairs ERI’s Visit to the United States

From June 21 to June 24, Ms. ERI Arfiya (英利アルフィヤ), Parliamentary Vice-Minister for Foreign Affairs of Japan, will visit New York, United States.

During her visit, Parliamentary Vice-Minister ERI will attend the United Nations General Assembly High-Level Meeting on HIV/AIDS and deliver a statement in the meeting. She will also hold meetings with representatives of international organizations.

(Reference) Schedule

June 21	Departure from Tokyo
	Arrival at New York
June 22	Participation in the United Nations General Assembly High-Level Meeting on HIV/AIDS, etc.
June 23	Meetings with representatives of international organizations, etc.
	Departure from New York
June 24	Arrival at Tokyo

The 7th Japan-Australia Cyber Policy Dialogue

On June 18, the 7th Japan–Australia Cyber Policy Dialogue was held in Tokyo, Japan.

This whole-of-government meeting was co-chaired by Mr. MIYAKE Fumito (三宅史人), Ambassador in charge of Cyber Policy and Deputy Director-General of the Foreign Policy Bureau, Ministry of Foreign Affairs (MOFA) of Japan, and Ms. Jessica Hunter, Ambassador for Cyber Affairs and Critical Technology, Department of Foreign Affairs and Trade (DFAT), Australia, with the participation of officials from, on the Japanese side, MOFA, National Cybersecurity Office (NCO), National Police Agency (NPA), Ministry of Defense (MOD), Ministry of Internal Affairs and Communications (MIC) and Ministry of Economy, Trade and Industry (METI), and on the Australian side, DFAT, Department of Industry and Australian Signals Directorate (ASD)’s Australian Cyber Security Centre (ACSC) and Department of Home Affairs (DHA).
At this dialogue, following the enactment of Japan’s Cyber Response Capability Strengthening Act and Necessary Arrangement of Relevant Acts last year, as well as the adoption of its new Cybersecurity Strategy, the two sides exchanged views on broad range of topics, such as each country’s respective cybersecurity strategy and policy, and cooperation at both the bilateral and multilateral levels.
Furthermore, building on the “Japan–Australia Strategic Cyber Partnership” which Ms. TAKAICHI Sanae (高市早苗), Prime Minister of Japan and the Hon. Anthony Albanese, Prime Minister of Australia concurred on launching at the Japan–Australia Summit Meeting in May of this year, the two sides exchanged views on efforts and cooperation in a wide range of areas including the defense and deterrence of cyber threats, capacity-building, public-private partnerships, and artificial intelligence (AI) and cybersecurity.
Both sides confirmed that they will continue to work closely together in the field of cyber, including through the Japan–Australia Cyber Policy Dialogue.

[from the Ministry of Foreign Affairs of Japan, 18-19 June, 2026]

Stablecoins and Financial Stability

The United States has introduced a new stablecoin regulatory framework, but concerns over the cryptocurrency’s place in the global economy remain.

[from the Federal Reserve Bank of Richmond’s Econ Focus, Fourth Quarter 2025, by Matthew Wells]

Signed into law in July 2025, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was a huge step forward for the cryptocurrency industry. The bipartisan legislation marked the federal government’s first effort at creating a regulatory framework for cryptocurrencies and signaled that crypto had finally achieved a status and size worthy of the government’s attention.

Stablecoins are digital assets used primarily as currency to buy and sell other cryptocurrencies, such as bitcoin, on blockchains, which are decentralized electronic ledgers. Traditionally, they are viewed as “private money” that has been pegged one-to-one to a state-issued currency, typically the U.S. dollar, although others have been pegged to the euro, the Japanese yen, and the Swiss franc.

While few people use stablecoins to pay for conventional goods and services, the technology is expanding rapidly. The SWIFT payment system is transitioning to the blockchain, allowing banks to settle transactions with stablecoins, and large companies such as PayPal have developed their own stablecoins. Walmart, Amazon, and several large financial institutions are also exploring their potential.

The GENIUS Act gives banking regulators, including the Federal Reserve, oversight authority over the entities that issue stablecoins. However, the law leaves it to those regulators to decide what rules to create and how to implement them. Further, increases in stablecoin demand may impact other sectors of the economy, such as the Treasury market and the global demand for dollars. All these carry potential implications for the stability of stablecoins, as well as the Fed’s efforts to maintain a safe and secure financial system.

Stablecoin Fundamentals

Customers wanting stablecoins pay money through their bank accounts, credit or debit cards, or other payment systems to an entity issuing them. With those stablecoins in hand, users can make purchases or investments wherever they are accepted. When users want to “cash in,” they take whatever stablecoins they have, which could have increased or decreased in number, back to an issuer, where they collect dollars back at a one-to-one rate.

Two of the most popular stablecoins in the crypto space are Tether and USD Coin. Unlike dollars, which are fiat currency (that is, their value is derived from the government’s declaration of their value), they and other stablecoins are backed or collateralized by a range of assets (or reserves), especially cash or U.S. Treasurys. In theory, these reserves can be easily liquidated to pay any customer seeking to redeem stablecoins for dollars.

The GENIUS Act addresses these dollar-pegged and reserve–collateralized stablecoins specifically, but there are other types of stablecoins that fall outside of the act’s definition. Crypto–collateralized stablecoins, for example, are still pegged to a currency but are backed by other digital assets such as Ethereum, making them less stable because of the greater volatility of their reserves. Another example includes algorithmic stablecoins, which attempt to maintain a consistent dollar-pegged value through automated adjustments in value relative to other digital currencies.

Stablecoins are used primarily as an immediate and secure medium of exchange for blockchain-based transactions, particularly the buying and selling of other cryptocurrencies. Unlike traditional payment systems, which can take days to fully settle transactions, stablecoin transactions are settled at any time of day on the blockchain almost instantaneously through “smart contracts,” where the terms of the transaction are written into the code.

Beyond their speed on the blockchain, another benefit of stablecoins is their global reach. They can be used anywhere in the world, including areas where dollars are difficult to acquire. Coupled with the ease with which a user can move stablecoins in and out of crypto markets, their use can reduce the costs and frictions associated with remittances or other international transactions. For individuals in developing countries with persistently high inflation, stablecoins may also be a way to save money that is insulated from swings in the domestic currency.

In a February 2025 speech [archived PDF], Fed Gov. Christopher Waller similarly noted that for some users, stablecoins might also serve as a store of value. Relative to the other, more volatile crypto assets, stablecoins are low risk, “which allows traders to move out of risky positions into safe ones where the safe asset price is known and stable,” he argued. Most stablecoin transactions — more than 80 percent — occur outside of the United States.

To date, these benefits of speed and availability have mostly been enjoyed by individuals active in the cryptocurrency marketplace rather than the average consumer. According to the Fed’s most recent Diary of Consumer Payment Choice [archived PDF], only 3 percent of respondents said they used cryptocurrency as a form of payment in the last month. However, the annual transaction value of stablecoins exceeded $27 trillion in 2024, surpassing that of Visa and Mastercard combined. Further, stablecoins’ current market capitalization is about $267 billion, and Citigroup projects it will grow to between $1.9 trillion and $4 trillion by 2030. Treasury Secretary Scott Bessent made a similar claim in November, suggesting it could reach $3 trillion in the coming years. Motivated by that growth, and its potential implications for the economy, Congress passed the GENIUS Act.

A New Regulatory Framework

The GENIUS Act grants banks, nonbanks, and even nonfinancial institutions with approval from state or federal regulators the ability to issue stablecoins to the public. Under the act, the Office of the Comptroller of the Currency regulates federally qualified issuers with over $10 billion in stablecoins in circulation. If the issuer is a subsidiary of an insured depository institution, such as a bank, it is regulated by the appropriate federal banking agency. All issuers with less than $10 billion in circulation would be regulated at the state level. Regulators would be responsible for conducting annual audit and ensuring compliance with existing anti-money laundering and sanctions requirements.

Crucially, issuers would be required to hold at least one dollar’s worth of reserves for every stablecoin issued. Those reserves mostly come in the form of cash, insured and uninsured deposits, short-term Treasurys, repo agreements, and central bank reserve deposits. However, these issuers would be exempt from the regulatory capital requirements that currently apply to banks, and this holds true even if the issuers are banks engaged in regular banking activities.

Stablecoins are not defined as securities or commodities under the legislation, meaning they are not federally insured and do not have the same protections as traditional bank deposits. In other words, there is no government-backed guarantee a user would be able to get cash back when they want to trade back in their stablecoins. Issuers, as of now, also do not have access to the Fed’s lending facilities.

Proponents of stablecoins argue that government insurance and access to the Fed are not necessary because the assets designated as collateral by the GENIUS Act are highly liquid, and issuers are required to hold as many dollars in reserve as they have stablecoins in circulation. While this would seemingly guarantee stablecoin holders could redeem their coins for cash whenever they choose without any difficulty, not all policymakers or observers agree it would be that easy.

In an October 2025 speech [archived PDF], Fed Gov. Michael Barr argued that “Because stablecoins are not backed by deposit insurance and stablecoin issuers do not have access to central bank liquidity, the quality and liquidity of their reserve assets is critical to their long-run viability.”

He identified several points of vulnerability in those assets. In addition to the potential for some consumers to mistakenly assume all stablecoins — not just those covered by the GENIUS Act — carry the same level of stability, he pointed out that other dollar-pegged assets have not always been able to maintain that one-to-one value. Money market mutual funds, which are listed as one class of asset that can be used as collateral, “broke the buck” in 2008 following Lehman Brothers’ bankruptcy and experienced strains again in March 2020 at the outbreak of the COVID-19 pandemic.

Uninsured deposits, another acceptable reserve asset, were also a risk factor that precipitated the March 2023 banking stress associated with the failure of Silicon Valley Bank and others. The legislation also allows for any medium of exchange authorized by a foreign government to be used as collateral via repo agreements, which until recently in the case of El Salvador included the highly volatile bitcoin.

In an October 2025 speech, Fed Gov. Michael Barr argued that “Because stablecoins are not backed by deposit insurance and stablecoin issuers do not have access to central bank liquidity, the quality and liquidity of their reserve assets is critical to their long-run viability.”

The GENIUS Act prohibits issuers from paying out interest to individuals holding their stablecoins. If stablecoins paid interest, they would have to be treated — and regulated — like securities rather than simply forms of payment. The legislation does, however, allow stablecoin exchanges, known as Virtual Asset Service Providers, to offer “rewards” to users who choose to buy and sell cryptocurrencies or conduct other transactions on their platforms. This creates a potential loophole, as these exchanges, if authorized by regulators, can also be part of the same entity issuing a stablecoin. The platform/issuer can then use the dollars traded for the stablecoins to purchase other assets, likely Treasurys to back the stablecoins, and then pay out rewards to customers with the proceeds from those investments.

Barr noted this area of concern, suggesting issuers “have a high incentive to maximize the return on their reserve assets by extending the risk spectrum as far out as possible. Stretching the boundaries of permissible reserve assets can increase profits in good times but risks a crack in confidence during inevitable bouts of market stress.” To hedge against this possibility, stablecoin issuers are required to publish monthly reports on the composition of their reserve assets, a move intended to give stablecoin holders increased confidence in the issuer’s liquidity.

Parallels to the Free Banking Era

Barr’s argument implies that stablecoins are only as stable as the assets backing them. The United States first established a banking system with a national currency backed by Treasury bonds during the Civil War. Prior to that, in the free banking era from 1836 to 1863, states conducted banking supervision and regulation, and banks issued their own currencies. (See “When Banking Was ‘Free,’” [archived PDF] Econ Focus, First Quarter 2018.) Those paper notes had to be collateralized through state and federal government bonds, and capital and reserve requirements were inconsistent across states.

This meant the country’s economy operated with competing, private currencies. It was difficult for currencies in one part of the country to be redeemed in other parts, and it was often done at a discount; for example, the farther away from the bank issuing the note, the steeper the redemption discount. It wasn’t unusual for citizens to question the collateral backing the various banks’ notes, leading to regular bank runs and failures.

One can draw parallels between the free banking period and today’s stablecoin landscape. First, as of early June, there were 233 stablecoins available on the crypto market. Numerous digital service platforms market themselves as spaces where private companies can create, manage, and distribute their own stablecoins. Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo are considering the idea of a jointly issued stablecoin, as well as their own individual ones.

As was the problem with free banking, some economists question whether consumers will always maintain confidence that they can redeem stablecoins for cash on demand at the promised one-to-one rate. The large banks may be able to issue coins that no one will doubt, but the stablecoin marketplace includes platforms and issuers that are not banks at all, as well as international operators outside the jurisdiction of U.S. financial regulators.

“Smaller companies planning to issue stablecoins under the GENIUS Act to be regulated by one of the states may face market resistance,” says Michael Bordo, an economist at Rutgers University. “Unless there is perfect information about the backing and complete confidence in it, holders may want to discount the stablecoins or avoid them completely, as was the case under free banking in the United States.”

Yale University economist Gary Gorton expresses similar concerns, particularly due to the difficulty in regulating a transnational market. “Let’s suppose that one of the exchanges out there collapses because of fraud. Now everybody’s a little suspicious of these exchanges, and many aren’t even based in the United States,” he says. “That’s the kind of thing that would cause everybody to run.”

Should one stablecoin issuer experience a run where customers doubt its ability to pay back dollars on demand, it is possible others would too, especially if they are all backed by similar assets. This could lead to a crisis that extends beyond the stablecoin space and impacts the wider financial system. In a recent paper co-authored with Jeffery Zhang of the University of Michigan Law School, Gorton argued this outcome is consistent with the nature of short-term debt. Stablecoins are a form of that debt, and because of the laws of supply and demand, their values should fluctuate as the values of the assets backing them fluctuate.

“If one issuer gets in trouble and its stablecoin holders all run on it and ask for cash, it can sell Treasurys and give them the cash,” says Gorton. “But in a systemic event, 500 issuers are under siege and they all sell their Treasurys, and the price of Treasurys goes way down.”

Gorton and Zhang argued such a failure is in keeping with the pattern of systemic crises over the past 200 years, and the solution is not to outlaw stablecoins but to provide a safer alternative where “no one should have an incentive to produce information about the backing for the money (i.e., the banks’ assets); and everyone should know that no one has an incentive to produce that information.” In other words, a stablecoin that is truly stable is one that is accepted at par, anywhere and at any time, no questions asked. Gorton says that a digital currency issued by a central bank would meet these criteria.

Should one stablecoin issuer experience a run where customers doubt its ability to pay back dollars on demand, it is possible others would too, especially if they are all backed by similar assets. This could lead to a crisis that extends beyond the stablecoin space and impacts the wider financial system.

The Road Ahead

Skeptics and supporters alike agree that stablecoin adoption is likely to increase in the coming years. An important question, however, is whether it will attract new users looking for a new form of payment. Certainly, stablecoins offer the advantage of instant transactions, and merchants might have incentive to adopt them to replace credit cards, which currently assess transaction fees between 1.5 percent and 3.5 percent for each purchase. (See “Should Credit Card Fees Be Regulated?” [archived PDF]) However, it may be possible to achieve the benefits of quicker settlements and lower fees with existing payment rails, such as FedNow, raising the possibility that internal U.S. demand may be limited.

In a recent speech [archived PDF], Fed Gov. Stephen Miran acknowledged that stablecoins’ future growth may lie outside the United States. “Because GENIUS Act payment stablecoins do not offer yield and are not backed by federal deposit insurance, I see little prospect of funds broadly fleeing the domestic banking system,” he said. “The real opportunity in stablecoins is to satiate untapped foreign appetite for dollar assets from savers in jurisdictions where dollar access is limited.”

This increased global demand for stablecoins could precipitate increased demand for U.S. Treasurys. Stefan Jacewitz, an economist at the Kansas City Fed, suggested in a recent report that there is still a way to go for any increased adoption of stablecoins to make a meaningful difference in the economy. Circle, the largest U.S.-based stablecoin issuer, currently holds 43 percent of its assets in Treasurys. If all other issuers held that same percentage in Treasurys, it would amount to about $125 billion, which is less than 2 percent of the $6 trillion in outstanding Treasurys.

However, if the projections of increased adoption materialize, Jacewitz acknowledged the possibility that “it could lead to a substantial redistribution of funds” and potentially increase demand for Treasurys such that the increase in stablecoin issuers’ Treasury holdings could outpace the decrease in bank holdings. A 1 percent decrease in bank Treasury holdings — and an accompanying 1 percent decrease in bank lending — translates to a $325 billion reduction in loans into the economy, Jacewitz estimated.

The American Bankers Association and other banking organizations point to this potential for deposits to leave the banking system in calling for regulators to limit the ability of stablecoin issuers and platforms to pay out rewards. The crypto industry disagrees, arguing that banks fear competition, and banks could incentivize their depositors to stay by raising their deposit rate, something they did when they first competed with money market mutual funds.

While there is widespread agreement on the potential for stablecoins to serve an important function for cross-border transactions, concerns about their soundness and stability remain, and they are not just theoretical. Circle held $3.3 billion of its approximately $40 billion in reserves at Silicon Valley Bank when it collapsed in 2023, and its inability to access those reserves triggered a fall in the value of its USD Coin from the one-to-one ratio to below 87 cents on the dollar. In that case, the federal government stepped in and made whole all of Silicon Valley Bank’s depositors, including Circle, which restored its dollar peg.

Bordo argues that in the wake of the free banking era, it still took years of costly bank failures to get to the point where policymakers acted upon the realization that stability in the banking system required much more government intervention, supervision, and regulation than had existed. He notes, “There are always new entities that are going to figure out a way to be outside the regulatory net,” and stablecoins will not be any different.

As with any new financial innovation, the Fed will continue to study stablecoins to ensure that their benefits can be enjoyed by those who want to use them while maintaining overall financial and banking stability.

Readings

Gorton, Gary, and Jeffery Zhang. “Why Financial Crises Recur.” [archived PDF] University of Michigan Law and Economics Research Paper No. 24-069, June 25, 2025.

Jacewitz, Stefan. “Stablecoins Could Increase Treasury Demand, but Only by Reducing Demand for Other Assets.” [archived PDF] Economic Bulletin, Federal Reserve Bank of Kansas City, Aug. 8, 2025.

Spira, Jack, and David Wessel. “What Are Stablecoins, and How Are They Regulated?” [archived PDF] Brookings Commentary, Oct. 24, 2025.

“Stablecoins 2030: Web3 to Wall Street.” [archived PDF] Citi Institute, September 2025.

Download this article [archived PDF].

Related Webinar

PaymentsJournal is offering a webinar entitled “Stablecoins and the Reinvention of Remittance” on Tuesday, May 12, 2026 1:00-2:00 PM EDT.

RSVP for their webinar.

Science-Watching: From Ignition to Energy

[from Science & Technology Review July/August 2025 Research Highlights, by Noah Pflueger-Peters]

Achieving ignition at the National Ignition Facility (NIF) proved that harnessing the power of the Sun in a laboratory may be possible. The Sun’s extreme temperatures and pressures cause light elements to fuse together to create heavier ones, releasing enormous energy and sustaining conditions for more thermonuclear reactions. NIF replicates these conditions with inertial confinement fusion, in which lasers compress and heat a target capsule filled with deuterium and tritium (DT), “heavy” isotopes of hydrogen that contain extra neutrons. When the isotopes fuse, they create helium and a neutron, and the lost mass is converted into inertial fusion energy (IFE), which can be harnessed for energy production.

Nuclear fusion produces significantly more energy than either nuclear fission or burning fossil fuels for equivalent amounts of fuel. Since the input materials for fusion energy are plentiful on Earth, an IFE power plant could produce safe, abundant, power grid-compatible energy without highly radioactive byproducts.

Although significant work remains to harness fusion energy, pursuing the development and deployment of IFE is crucial for the nation’s energy security, enabling the United States to shape implementation worldwide, avoid technological surprises from adversaries, and influence technical leadership in other energy-intensive technologies such as AI, machine learning (ML), and supercomputing.

IFE research stretches back to the early days of Lawrence Livermore, and today the Laboratory is fostering the overall fusion ecosystem. Livermore’s unique capabilities, expertise, and connections will be critical to laying the technical, logistical, and legal groundwork to make IFE possible. “IFE is a grand scientific and engineering challenge, something that is so incredibly difficult and high-risk and takes enormous expertise,” says Tammy Ma, Livermore’s IFE Institutional Initiative lead. “This challenge makes it the right kind of problem for national laboratories to pursue.”

This artist’s rendering shows the concept for an inertial fusion energy (IFE) power plant design, with a cutaway to show the plant’s target chamber in the center. Livermore researchers are laying the groundwork for private fusion companies to build similar designs. (Illustration by Eric Smith.)

Designing for Viability

NIF is the only facility to date to demonstrate the ignition and burning plasma conditions that are prerequisites for IFE, but it is an experimental facility for stockpile stewardship research, not a power plant. To be commercially viable and produce the energy to offset costs and meet demands (baseload power), IFE plants will need to generate more than 30 times the energy they deliver to the fusion target on every shot while firing 10 or more shots per second, compared to NIF’s rate of one or two shots per day.

The Laser Inertial Fusion Energy (LIFE) study, conducted between 2008 and 2013, aimed to build directly on technology developed for NIF to achieve IFE and took a systematic approach to this requirement by developing the Integrated Process Model (IPM). (See S&TR, April/May 2009 [archived PDF], pp. 6-15.)

IPM is a technoeconomic model of an IFE power plant with detailed technical and cost breakdowns and interdependencies of key systems and subsystems. “The work done under LIFE was fantastic,” says Ma. “IPM lays out engineering and physics requirements for the entire system to test out different scenarios and see the impact. Now, we not only get to expand on all that but also leverage 15 years of new data from NIF, better codes, and high-performance computing (HPC), as well as new work in AI, ML, advanced manufacturing, diagnostics, and nonproliferation across the Laboratory.”

IPM describes an IFE power plant that requires a solid-state laser driver system to “pump” lasers with optical energy using laser diodes instead of flashlamps as at NIF. The plant will also need to fabricate and fill target capsules onsite and send them into its target chamber at a high enough frequency to produce baseload power. “We will have to repeatedly inject targets into the chamber, so the targets must be able to withstand and survive that process,” explains Ma. “Then, the lasers will track the moving targets, and when one gets to the center of the chamber, they would fire on the centered target, repeating 10 to 20 times per second.”

The facility would convert fusion energy into heat and then electricity via steam turbines, sending most of the electricity to the power grid and recycling the rest to power operations on subsequent shots. Neutrons from the reaction would produce tritium needed for the DT fuel by bombarding lithium isotopes in a “breeding blanket” material lining its target chamber. By closing both the power and fuel cycles, IFE plants are expected to be self-sustaining.

Thanks in part to IFE STARFIRE (IFE Science and Technology Accelerated Research for Fusion Innovation and Reactor Engineering), a Department of Energy (DOE)-funded multi-institutional IFE research and development hub, researchers across the Laboratory are working to meet the new system’s demands. IPM can help identify key challenges, test the viability of new designs, and direct future research. “Many technical models and cost models exist for IFE, but very few, if any, pair systems and cost models together at the same depth as IPM,” says Mackenzie Nelson, a technoeconomic systems analyst in the Computational Engineering Division. “This type of tool offers such an advantage because we can assess design choices from both a technical and economic standpoint and create blueprints for what an IFE plant could look like.”

(left to right) Livermore researchers Bassem El Dasher, Claudio Santiago, and Mackenzie Nelson discuss a 3D model of a proposed IFE power plant design alongside the Integrated Process Model (IPM). IPM has more than 270 potential user inputs that researchers and collaborators can use to assess different IFE design choices to see the technical and cost impact on the entire design.

Operational Demands

NIF’s target capsules are extremely precise, fragile, and can take weeks to fabricate, fill, and position. Researchers are trying to reconcile that factor with the estimated demand of more than 800,000 capsules per day produced at less than $0.50 each to achieve IFE plant viability. To do this, they are examining optimal target designs for IFE and exploring advanced manufacturing methods such as microfluidics, volumetric additive manufacturing, and two-photon polymerization. (See S&TR, April/May 2025 [archived PDF], pp. 16-19.) Additional projects involve developing diagnostic instruments that can collect, analyze, and combine data with other diagnostics at the 10 to 20 shot per second frequency and use it to improve lasers in real time.

Fusion energy systems such as IFE are also a regulatory challenge, as they generate high-energy neutrons capable of breeding plutonium or uranium-233 and rely on large quantities of tritium. “Pure fusion energy systems do not require fissile material, but there are still ways to misuse these technologies that pose proliferation risk,” says Yana Feldman, the associate program leader for international safeguards. Bad actors may only need small amounts of tritium to make nuclear weapons, and some breeding blanket designs may inadvertently produce traces of plutonium that may be diverted for military purposes.

Nuclear fission reactors are regulated through international agreements and export control rules, and the independent International Atomic Energy Agency (IAEA) verifies that nuclear material and facilities are only being used for peaceful purposes. Neither treaties nor the IAEA address fusion energy, and no consensus has been reached on whether fusion energy systems need an international verification program. Verification methods for safeguarding tritium are also far less developed than for plutonium and uranium and focus more on contamination and transfers than analytical accounting for discrepancies. The precise scale of allowable tritium unaccounted for without posing proliferation risk is also unclear.

Fusion systems can be designed for proliferation resistance, but not having an existing design remains a challenge.

International security analyst Anne-Marie Riitsaar and her colleagues are exploring these complexities and starting conversations with international fusion experts and private industry to raise awareness. Riitsaar also plans to collaborate with the IPM team to map tritium diversion vulnerabilities and identify high-risk points where researchers could incorporate surveillance methods into plant designs to detect and prevent potential misuse. “People sometimes ask me why I’m thinking about fusion energy regulations and proliferation risks at this point, but it’s not too early,” says Riitsaar. “Reaching a multinational consensus on regulating sensitive technologies takes considerable time and effort.”

The National Ignition Facility is an experimental facility and not a power plant, so a commercial IFE plant design has vastly different requirements—many of which are being studied by Livermore researchers and their collaborators.

	NIF	Viable IFE plant (estimated)
Repetition rate	One shot per day	10 to 20 shots per second
Energy gain	4.13 times (as of April 2025)	30 times (minimum), 50 times to 100 times (ideal)
How lasers gain energy	Flashlamps	Diode pumping
Target fabrication and fuel filling	Fabricated offsite over several weeks and filled manually in 1 to 5 days	Mass-manufactured and filled in a target factory within the facility
Target delivery	Positioned manually within the Target Chamber	Shot into the plant’s target chamber approximately 10 to 20 times per second
Laser alignment	Computationally in real time, taking up to 8 hours	In real time
Power cycle	Open, requiring outside energy sources	Closed, applying reused energy to power laser and ancillary plant operations
Fuel cycle (tritium)	Produced offsite	Bred onsite

The Laser Driven Fusion Integration Research and Science Test Facility (LD-FIRST) is a proposed blueprint for a proof-of-concept IFE facility that will test all the key IFE subsystems in an integrated fashion. A public-private partnership will likely be necessary to build the facility and will help the IFE community address the main subset of risks and the technological challenges of building a commercial plant.

Converging on a Solution

The team seeks to make IPM as accurate and comprehensive as possible by meeting with subject matter experts across the Laboratory to incorporate the latest research. “We’re trying to evolve the model so it has the same level of high detail across every single functional area to tell us where we can focus research and help us find optimized solutions that we could propose to industry,” says Nelson.

Computer scientist Claudio Santiago and his colleagues also modernized IPM by porting its framework from Microsoft Excel to Python in December 2024, making it compatible with AI, ML, design optimization, and HPC to further inform designs. “Once we think about all the forcing functions such as minimum shot yield and materials requirements pinning us in from every direction, we end up with an optimized solution space. As we sharpen the pencil more with these tools, that optimized solution box gets smaller until eventually we’ve converged on a point design,” says IFE lead systems engineer Justin Galbraith. Galbraith and his team’s point design is called the Laser Driven Fusion Integration Research and Science Test Facility, or LD-FIRST, a proof-of-concept physics demonstration facility for IFE. “That point design, we anticipate, will serve as the foundation for a future public-private partnership that would facilitate building and realizing a physical facility to focus the IFE community in pursuit of fusion power on the grid,” says Galbraith.

Livermore is leading the charge in IFE, helping the United States develop a technological roadmap, growing and coordinating science and technology efforts within the Laboratory, and fostering partnerships across the fusion industry, academia, and government.

Ma chaired DOE’s “Basic Research Needs for IFE” workshop and report in 2022 and co-chairs the subcommittee providing recommendations on the nation’s fusion activities through DOE’s Fusion Energy Sciences Advisory Committee. She and her team travel often to Washington, D.C., working with DOE and legislators to expand fusion energy research and advocacy in the nation. Livermore also leads a “Collaboratory” with other DOE national laboratories to connect research project leads and facilitate public-private partnerships. The Collaboratory has hosted multiple events with industry, and the Laboratory has partnered with three private companies who aim to design pilot IFE plants.

Meanwhile, Galbraith and other IFE leaders have served as technical advisors for engineering design teams at Texas A&M University and given them IFE-relevant problems to solve, including advanced chamber and blanket design. Galbraith is working with Nelson to develop the IFE plant design portion of a high-energy-density science summer school program, which Nelson is leading in 2025 at the University of California at San Diego, and they have developed IFE curriculum that has been deployed at six universities starting in spring 2025. “We’re hoping we can get a group of students really excited about fusion and start to build up the next generation of engineers and scientists that will make fusion a reality,” says Galbraith. The team has led IFE strategic planning exercises at the Laboratory, and Lawrence Livermore will stand up a new fusion institute—named “LIFT,” for Livermore Institute for Fusion Technology—a research and development center that will coordinate and centralize institutional fusion energy research.

Harnessing IFE will be a massive undertaking, but Livermore’s broad and deep expertise, facilities, and capabilities put the Laboratory in a unique position to lead and play an impactful role. “If we can set it up correctly, IFE will be a big piece of the Laboratory’s long-term vision,” says Ma. “IFE plays off of our history and all of our strengths, and it is critical for long-term national security.”

GPIF, one of the largest national pension funds in the world, is likely to rebalance its assets from non-yen bonds to yen bonds, signaling a big turn in Japan’s cross-border capital flows.

Key takeaways

Japan has one of the Largest Pension Funds in the World

Chart 1

GPIF used to invest most of its asset into JGBs

Chart 2

UEDA in 2013 Saw a Bond Crash Coming

GPIF CEO Priced the Crash at 3% in 2014. We Are There Now

The 2014 cut in the weight was partly an emergency escape

How GPIF decides its weights

Why GPIF kept the weight in 2025 and why circumstances changed

The Whale Problem and the Washington Problem

How much GPIF buys: ¥32tn at 35%, ¥80tn at 50%

The sister funds move with the whale

Conclusion

Rising sea temperatures are pushing pufferfish species together, spawning hybrids that even specialist chefs cannot safely prepare

Fatal attraction

Rail congestion rose again in Japan [日本]’s major cities in fiscal 2025, but trains are still far less packed than they were before the pandemic.

Slight Rise in Tokyo

Data Sources

Dream Analysis

Integrating the Self

Kon’s Themes

Robot Adventure?

A Thought Experiment Envisioning A “Fully Automated Society”

Scarcity Will Continue to Be a Problem

For People to Enjoy Affluence

References

Economic Activity, Prices, and Monetary Policy in Japan

Speech at a Meeting with Local Leaders in Hyogo

Flow of Funds Accounts (Retroactive Revision and 1st Quarter 2026, Preliminary Figures)

Monthly Report on the Services Producer Price Index

Preliminary determination of Anti-Dumping Duty Investigation of Nickel-added cold-rolled stainless steel coil, sheet, and strip originating in the People’s Republic of China and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu

Reference

Extension of the Period of Investigation of Nickel-added cold-rolled stainless steel coil, sheet and strip originating in the People’s Republic of China and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu

Reference

Issues Re-opened through Liquidity Enhancement Auction on June 19, 2026

Result of Liquidity Enhancement Auction on June 19, 2026 (For JGB Market Special Participants)

Note

Auction Result of Treasury Discount Bills on June 19, 2026

Note

Interest Rate (June 2026)

Treasury Discount Bills to Be Auctioned on June 26, 2026

First Meeting of the Study Group on Strengthening Japan-Africa Economic Partnership

(Reference 1) Japanese Members

(Reference 2) African Members

(Reference 3) Attachment

G7 Evian Summit

Working Session on “Reviving a Balanced, Shared and Sustainable Economic Growth”

Situation in Iran (Signing of a Memorandum of Understanding between the United States and Iran)

(Message from Foreign Minister MOTEGI Toshimitsu [茂木 敏充])

Parliamentary Vice-Minister for Foreign Affairs ERI’s Visit to the United States

(Reference) Schedule

The 7th Japan-Australia Cyber Policy Dialogue

The United States has introduced a new stablecoin regulatory framework, but concerns over the cryptocurrency’s place in the global economy remain.

Stablecoin Fundamentals

A New Regulatory Framework

Parallels to the Free Banking Era

The Road Ahead

Readings

Related Webinar

Designing for Viability

Operational Demands

Converging on a Solution

(Message from Foreign Minister MOTEGI Toshimitsu [茂木敏充])