Japan Inc. Now Sells No Yen to Invest Abroad

Earnings on Japan’s foreign direct investment (FDI) reached 103% of new FDI in 2022–25. With dividends and retained earnings counted together, Japan Inc. now needs to sell little yen to invest abroad.

[by OKUBO Takuji]

Key takeaways

  • Foreign affiliates now earn about as much as Japan invests abroad each year. Reinvested earnings, dividends and interest together reached 103% of new outward FDI in 2022–25, against 48% in 1996–2000.
  • Dividends from foreign affiliates account for a growing share of Japanese corporate profit. We estimate that foreign affiliates contributed 13.4% of Japan Inc.’s earnings in FY2025, up from 1.7% in FY1996.
  • Corporate investment abroad now involves little net yen selling. After dividends and interest paid home, the estimated outflow has been close to zero since 2022, down from about ¥5 trillion a year, or about 1% of GDP, on average in the 2010s.

Japan’s FDI stock now earns 103% of new investment

It is often said that Japan’s ageing population and slow growth give its companies too few investment opportunities at home. A Japanese government report in 2024 included the following passages.

“Japan’s ageing and shrinking population depresses expected demand at home. Expected returns remain higher abroad, so Japanese companies have accelerated outward direct investment” (my translation). — MATSUBAYASHI Yōichi [松林 洋一], MOF PRI, chapter 8, p.136.

“Companies invested abroad because they saw no promising investments in Japan; they are unlikely to bring back every return. On a cash-flow basis, the external balance is in deficit and is one factor behind the weak yen” (my translation). — KARAKAMA Daisuke [唐鎌 大輔], MOF PRI, chapter 10, pp.178 and 175.

However, my review of recent data shows that while their premise of low growth prospects in Japan is probably still right, the direct investment Japan has accumulated abroad has reached a level where it earns enough to cover Japan’s new investment abroad. This changes the exchange-rate implication even if Japan keeps investing abroad.

As chart 1 shows, earnings on the accumulated investment stock rose from 48% of new outward FDI in 1996–2000 to 103% in 2022–25.

Chart 1

Overseas affiliates pay interest and dividends to their parent companies in Japan. Those dividends have become a sizable part of corporate Japan’s income: we estimate that they made up 13.4% of Japanese corporate profit in FY2025, up from 1.7% in FY1996.

When foreign affiliates retain their earnings on their balance sheets, Japan’s balance of payments statistics record them as FDI from Japan, even though no money crosses the border. While the companies receiving FDI dividends and the companies paying for new FDI are not necessarily the same, Japan Inc. as a whole is now financing its FDI almost entirely from the earnings of its overseas affiliates. At the current level of FDI, little new yen needs to be converted into foreign currencies as Japan goes about investing abroad.

In the rest of this report, I explain how foreign direct investment by Japanese companies evolved, and its near-term outlook. This report is the third in a series on the yen repatriation theme that I have published over the past few weeks, following “Yen Repatriation Starts with the Whale”, on capital flows through Japan’s national pension funds, and “Mrs Watanabe No More”, on Japanese households’ assets invested abroad.

A strong yen helped drive Japan’s first outward FDI boom

Japan’s outward investment was heavily restricted after WWII, requiring case-by-case permission from the government. Approvals became more and more automatic over the years until outward investment became “free in principle” in 1980. Trade friction with the US-led Japanese carmakers to restrain their exports from 1981, pushing them to build factories abroad. The rapid appreciation of the yen was also a factor. The yen strengthened from ¥242 per dollar before the Plaza Accord in September 1985 to ¥121 by the end of 1987. Japanese producers had to move lower value-added work abroad. The strong yen also gave Japanese financial institutions sizable purchasing power for a while, until the stock and property bubbles burst in 1990 and 1991.

All of these factors contributed to a rapid increase in outward FDI through the 1980s and 1990s (chart 2).

Chart 2

Even after the bubble burst, the strong yen kept pushing manufacturers to move abroad. In 2005, manufacturers accounted for 60% of the FDI stock. As Japanese manufacturers expanded their supply chains abroad, Asia’s share of outward FDI rose from about 12% in FY1986–90 to 19% in FY1995–99, and Asia held 23% of the FDI stock by 2005 (chart 3).

Chart 3

Japan’s outward FDI stock rose to 56% of GDP

The next phase was sustained by a different pressure. With weak growth and low interest rates at home, Japan Inc. kept investing abroad, across a broader range of industries. Between 1995 and 2025, the stock of FDI rose from 9% of Japan’s GDP to 58% (chart 4). In 2025, it is as large as about 38% of the private sector’s domestic fixed capital, on our estimate.

Chart 4

By industry composition and by destination compositions changed over time. Manufacturing’s share of the FDI stock had fallen to 37% by 2025, giving Japan’s FDI more breadth. By destination, we are seeing a revival of FDI toward the United States. It accounted for 34% of the stock in 2025, Europe 29% and Asia 25% (see earlier chart 3).

Thus, after decades of overseas investment, Japan’s FDI stock is now large enough that its earnings are sufficient to finance new investment abroad, at least for now. In the next section, I consider whether this will continue, and in particular whether Japanese companies may bring an even larger share of their overseas earnings back to Japan, given the weak yen, higher borrowing costs in yen and possibly better investment opportunities at home.

The weak yen has slowed offshoring, not reversed it

The real depreciation of the yen over the past 15 years made production in Japan more competitive. There is some evidence that manufacturers are considering bringing production back to Japan. The 2023 manufacturing white paper found more firms shifting production back from China than moving there, and they named the weak yen as one reason. We see some signs of reshoring. Japanese manufacturers’ overseas production ratio rose from 18.0% in FY2011 to 27.2% in FY2023, but it may have started to decline or at least stabilize. The ratio fell to 26.7% in FY2024. A Cabinet Office survey of listed manufacturers puts the ratio at 24.5% in FY2025, and their plan for FY2030 is broadly unchanged at 24.7%. The weak yen seems to have stabilized the wave of offshoring, but I see no firm evidence of a move back onshore yet.

Domestic investment has grown slowly despite the weak yen

There are tentative signs that domestic capital spending is starting to grow again. For three decades it grew at a very low speed. In real terms, private business investment rose only 26% between FY1997 and FY2025, less than 1% a year. In comparison, capital spending grew by about 4% a year on average in the United States. In my view, a weak currency is only one of the factors manufacturers weigh in designing their global production chains. The weak yen makes production in Japan competitive today, but they have also seen the exchange rate swing violently within short periods. Japan also has a shrinking population problem. It started to address it by opening a door to immigration, but the door is only tentatively open. Overall, my view is that the weak yen alone is unlikely to give Japan Inc. sufficient incentive to bring its capital back to Japan and to the yen.

Economic security is bringing some production home

The government is pushing harder than the currency, mostly in the name of economic security, even before the Takaichi government came along. The government currently has a ¥250 trillion domestic investment target for FY2040 and named AI and semiconductors among its 17 strategic fields. Semiconductors are where the money has gone furthest. In November 2024, under the Ishiba government, Japan committed more than ¥10 trillion of public support to AI and semiconductors by FY2030, aiming to draw more than ¥50 trillion of public and private investment over ten years. Japan managed to lure a TSMC plant to Japan, backed by a sizable subsidy. Rapidus, a government-supported Japanese semiconductor maker, has received a sizable subsidy and is building a factory in Hokkaido. Japan’s production of integrated circuits and discrete semiconductors rose from ¥2.7 trillion in 2019 to ¥4.1 trillion in 2025.

Under the name of economic security, the Japanese government is promoting other industries such as batteries, shipbuilding and pharmaceuticals. Defence spending adds to the push. Japan’s defence budget rose from about ¥5 trillion in FY2022 to ¥9.0 trillion in FY2026. Some defence contractors, such as Mitsubishi Heavy Industries, have doubled their defence revenue.

Japan’s industrial-policy record gives reason for caution

The Japanese government and the Ministry of Economy, Trade and Industry (METI), the key agency behind Japan’s industry policy, may claim some expertise in their industrial policies. Empirical studies in the past paint a poor track record, though. Rapidus, the most ambitious semiconductor project, has had no independent cost-benefit assessment (Negrine et al., 2025). While defence and economic security-driven policies have a different logic, I doubt that these industrial policies will succeed in bringing large-scale manufacturing investment back to Japan so long as macro factors such as Japan’s demography remain unfavourable.

FDI no longer appears to drive yen weakness

The weak yen and non-economic geopolitical factors do point to a halt in Japan’s four-decade offshoring trend, although it is a stabilization, rather than an economy-wide reversal of past offshoring. Japan Inc. will continue to invest more abroad, rather than within its borders. Given the sizable growth in the stock of cumulative FDI, Japan Inc. no longer needs to convert yen into overseas currency to keep investing abroad though. Net of dividends and interest paid home, Japan’s FDI sold about ¥5 trillion of yen a year, or about 1% of GDP, on average in the 2010s; since 2022 the net flow has been close to zero. There is also an interesting development in an effort to allow more share-exchange based M&A for cross-border deals that will further reduce the need for Japanese companies to spend their yen to purchase overseas assets. In my view, Japan Inc.’s FDI is no longer a factor to drive the yen weaker.

References

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

  1. 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 stripa originating in the People’s Republic of Chinab 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.
  2. 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

  1. With regard to the Anti-Dumping Duty Investigation on Nickel-added cold-rolled stainless-steel coil, sheet, and stripa originating in the People’s Republic of Chinab 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.
  2. 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

SecuritiesIssue NumbersRe-opened Amounts (billion yen face value)
10-Year363133.7
10-Year3648.4
10-Year36534.8
10-Year36927.7
10-Year37048.9
20-Year12875.1
20-Year129110.6
20-Year1329.0
20-Year1332.5
20-Year1364.9
20-Year14216.0
20-Year1436.8
20-Year1532.0
20-Year1549.9
20-Year1590.7
30-Year65.0
30-Year70.1
30-Year135.0
30-Year140.1
30-Year1514.1
30-Year160.2
30-Year1725.6
30-Year194.9
30-Year2053.0
30-Year238.6
30-Year2432.4
30-Year268.9

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

Auction DateIssue DateAmounts of Competitive Bids (billion yen)Amounts of Bids Accepted (billion yen)Highest Accepted Spread*Allotment for Bids at the Highest Accepted SpreadAverage Accepted Spread*
6/196/221,897.8648.9+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 NumberAuction DateIssue DateMaturity DateAmounts of Compet. Bids (billion yen)Amounts of Bids Accepted (billion yen)Lowest Accepted Price (per 100 yen)Yield at the Lowest Accepted PriceAllotment for Bids at the Lowest Accepted PriceWeighted Average Price (per 100 yen)Yield at the Average PriceAmounts of Non-price compet. Auction Ⅰ* (billion yen)
13896/196/229/249,637.503,150.3899.76300.9224%79.2411%99.76600.9107%949.60
Note

For JGB Market Special Participants.

Interest Rate (June 2026)

Date1Y2Y3Y4Y5Y6Y7Y8Y9Y10Y15Y20Y25Y30Y40Y
6/11.123%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%
6/21.114%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%
6/31.126%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%
6/41.148%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%
6/51.14%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%
6/81.144%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%
6/91.146%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%
6/111.149%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%
6/121.15%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%
6/151.141%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%
6/161.147%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%
6/171.139%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%
6/181.146%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]

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.

NIFViable IFE plant (estimated)
Repetition rateOne shot per day10 to 20 shots per second
Energy gain4.13 times (as of April 2025)30 times (minimum), 50 times to 100 times (ideal)
How lasers gain energyFlashlampsDiode pumping
Target fabrication and fuel fillingFabricated offsite over several weeks and filled manually in 1 to 5 daysMass-manufactured and filled in a target factory within the facility
Target deliveryPositioned manually within the Target ChamberShot into the plant’s target chamber approximately 10 to 20 times per second
Laser alignmentComputationally in real time, taking up to 8 hoursIn real time
Power cycleOpen, requiring outside energy sourcesClosed, applying reused energy to power laser and ancillary plant operations
Fuel cycle (tritium)Produced offsiteBred 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.”

Economic-Watching: Fourth District Beige Book

[from the Federal Reserve Bank of Cleveland, 3 September 2025]

Summary of Economic Activity

Fourth District contacts reported a slight increase in overall business activity in recent weeks and expected activity to rise modestly in the months ahead. Consumer spending was flat, with retailers noting continued affordability concerns among consumers. Manufacturers also reported flat demand for goods, citing trade policy uncertainty as the main driver. Demand for professional and business services grew moderately, albeit at a slower pace than in the past three reporting periods. Contacts generally reported flat employment levels and modest wage pressures. Nonlabor cost pressures remained robust, and selling prices continued to grow modestly.

Read the full report [archived PDF].

Economics-Watching: Why Businesses Say Tariffs Have a Delayed Effect on Inflation

[from the Federal Reserve Bank of Richmond, 8 August, 2025]

by R. Andrew Bauer, Renee Haltom and Matthew Martin

Regional Matters

Ever since new tariffs were enacted in early 2025, a key policy question has been what is the extent to which businesses will pass tariff costs through to prices, and when? The effects of a tariff are rarely straightforward, given, among other things, competitive dynamics and the challenges of implementation, but the historically large and changing nature of these tariffs have created additional levels of uncertainty over the effects.

In uncertain times, anecdotal evidence from businesses can be especially insightful. We are learning how businesses are reacting to tariffs through the Richmond Fed’s business surveys as well as through hundreds of one-on-one conversations with Fifth District businesses since the start of 2025.

These conversations showcase that navigating tariffs is a complex and sometimes protracted process for firms, particularly when there is uncertainty. Firms describe several reasons they may not have experienced the full impact of proposed tariffs yet (even when goods and countries they deal with are subject to them), as well as reasons that even when they have incurred tariff-related cost increases, there can be a delayed impact on pricing decisions.

Reasons Firms May Not Have Incurred Tariffs Yet

Business contacts describe several strategies or circumstances that can delay or reduce the tariffs on inputs or other imported items. These include the following:

As our monthly business surveys have found, many firms report deploying more than one strategy to delay tariffs. Notably, many of these delays are only temporary.

Reasons Tariffs May Have a Delayed Impact on Prices

Even when firms have incurred tariffs, they give several reasons why tariffs may not be immediately reflected in the prices they charge for their products. These include the following:

  • Waiting for tariff policy to clarify. Higher prices could reduce demand for goods and services and/or lead firms to lose market share, so many firms said they are hesitant to increase prices until they’re sure tariffs will remain in place. For example, a large national retailer said if tariffs are finalized at a sufficiently low level, they’ll absorb what they’ve incurred to date, but if high tariffs stick, they’ll have to raise prices. A steel fabricator for industrial equipment described being reluctant to raise prices on the 10 percent cost increases they’d seen thus far but would have to raise prices should the increases reach 12 to 13 percent. A grocery store chain was reluctant to raise prices and instead might reduce margins, which had recovered in recent years, to maintain their customer base. Some firms explicitly noted a strategy to both raise prices over time and pursue efficiency gains to cut costs and completely restore margins within a year or two.
  • Elasticity testing. Firms reported testing across goods whether consumers will accept price increases. A furniture manufacturer said he’s seen competitors pass along just 5 percentage points of the tariffs at a time so it isn’t such a huge shock to customers, though in that sector, “We all end in the same place which is the customer bearing most of it.” A national retailer said most firms are doing a version of stair-stepping tariffs through, e.g., raising prices a small amount once or twice to see if consumer demand holds, and if so, trying again two months later. This retailer said prices were going up very marginally in early summer, would increase more in July and August, and would be up by 3 to 5 percent by the end of Q4 and into 2026. Another national retailer said they would start testing the extent to which demand falls with price increases, e.g., when the first items that were subject to tariffs—in this case back to school items—hit shelves in late July.
  • Blind margin. Some firms reported attempting to pass through cost in less noticeable ways. While any price increase to consumers will be captured in measures of aggregate inflation, the fact that price increases may occur on non-tariffed goods might make it difficult to directly relate price increases to tariffs. An outdoor goods retailer said, “Unless it’s a branded item where everyone knows the price, if something goes for $18, it can also go for $19.” A national retailer plans to print new shelf labels with updated pricing, which will be less noticeable for consumers compared to multiple new price stickers layered on top. This takes time (akin to a textbook “menu cost” in economics), so it will not be reflected in prices until July and August. A grocery store said their goal was to increase average prices across the store but focus on less visible prices.
  • Selling out of preexisting inventory: Many firms noted they still have production inventory from before tariffs were announced, so they do not need to raise prices as long as they still sell these lower cost goods. A national retailer noted they have at least 25 weeks of inventory on hand for most imported products. A firm that produces grocery items said they will decide how much to raise prices as they get closer to selling tariff-affected products. Similarly, retailers order seasonal items quarters in advance. Many were receiving items for fall and winter when the new tariffs were going into effect in the spring. They paid the tariff then, but we won’t see the price increase until those items hit the shelves in the fall or winter. One retailer speculated that seasonal décor items will look the most like a one-time increase.
  • Pre-established prices. Many firms face infrequent pricing due to factors like annual contracts or pre-sales. For example, a dealer of farm equipment gets half its sales through incentivized pre-sales to lock in demand and smooth around crop cycles. They noted that while it would be difficult to retroactively ask those customers to pay for part of the tariff, they will pass tariffs directly through on spare parts. A steel fabricator for industrial equipment has a contract for steel through Q3, so they haven’t been impacted yet by price increases. However, they will face new costs once that contract expires.

In general, compared to small firms, large firms have more ability to negotiate with vendors, temporarily absorb costs, burn cash, wait for strategic opportunity, and test things out. This matters because large firms often lead pricing behavior among firms, so these strategic choices may influence the response of inflation to tariffs more generally. Even within firm size, one often hears that negotiations on price vary considerably by relationship and item.

Conclusion

A key question surrounding tariffs is whether any effects on inflation will resemble a short-lived price increase—as in the simplest textbook model of tariffs—or a more sustained increase to inflation that may warrant tighter Fed monetary policy. When asked in May what will determine the answer, Fed Chair Jerome Powell cited three factors [archived PDF]: 1) the size of the tariff effects; 2) how long it takes to work their way through to prices; and 3) whether inflation expectations remain anchored. The insights shared above suggest the process from proposed tariffs to the prices set by firms is far from instantaneous or clear-cut, particularly when tariff policy is changing.

Sensing from businesses suggests that the impact of tariffs on their price-setting [archived PDF] has been lagged, but it is starting to play out. Nonetheless, it remains highly uncertain how tariffs will impact consumer inflation. The discussion above makes clear that firms are nimble and innovative in the face of challenge, and they are concerned about losing customers in the current environment, particularly consumer-facing firms. We will continue to learn from our business contacts and share their insights.


Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

Economics-Watching: Kuwait: GDP Returns to Growth in Q1 2025 as Impact of Oil Output Cuts Fades

[from NBK Economic Research, 21 July, 2025]

by Mohammad Al-Shehri, Assistant Economist & Omar Al-Nakib, Head of MENA Research

Preliminary official figures show GDP expanding 1% y/y in Q1 2025 following seven consecutive quarters of contraction, helped by a less severe downturn in oil output. With the negative effects of earlier voluntary oil production cuts beginning to fade, oil GDP recorded only a marginal decline, the softest since Q2 2023. Growth in non-oil activity remained positive though eased, weighed by a moderation in the manufacturing, real estate, and transport sectors. The near-term outlook for GDP is one of positive growth, lifted by rising oil production after Kuwait started to restore 135 kb/d of oil output cuts between April and September 2025, while the non-oil sector should also register further steady gains.

Non-oil GDP growth softens in Q1 2025 after strong performance in Q4 2024

Growth in the non-oil sector weakened in Q1 2025, slowing to 2% y/y compared to 4% recorded in the prior quarter. (Chart 1.) The softer expansion in non-oil activity reflected, among other things, a moderation in the manufacturing sector, where activity grew at a still-solid 4.3% despite a decline in refined petroleum products output but slowed notably from the 12.2% reading registered in Q4 2024. Growth in other sectors including real estate, wholesale & retail trade, transport, and education also slowed. Offsetting the slowdown was stronger expansion in the non-oil economy’s largest segments: public administration and defense as well as financial intermediation and insurance, which grew 1% and 3.2% y/y, respectively. (Chart 2.)

Chart 1: Real GDP growth

Chart 2: Growth at sub-sector level (1Q25)

Oil sector logs marginal contraction, set to return to growth in Q2

The contraction in oil GDP eased significantly to -0.3% y/y from -5.7% y/y in Q4 2024, registering the softest rate of decline since Kuwait embarked on cutting oil production in Q2 2023 after participating in the voluntary cuts scheme with 7 other OPEC+ members. (Chart 4.) Kuwait’s oil production averaged 2.415 mb/d in Q1 2025, a 0.7% decline from the same quarter last year, according to OPEC secondary sources. However, oil sector fortunes are set to shift in Q2 2025 and thereafter, after the OPEC-8 member alliance started unwinding the 2.2 mb/d voluntary cut tranche in April 2025. Originally planned to be unwound over the course of 18 months, OPEC+ has accelerated the pace of supply hikes with output now on a path to be fully restored in September, a full year ahead of schedule. For Kuwait, crude production rose by 0.5% q/q in Q2 to 2.426 mb/d and is set to accelerate further to average 2.533 mb/d in H2 2025. With the oil market so far able to absorb the additional OPEC and global supply and oil prices currently holding near $70/bbl, an upside risk to our oil sector outlook involves the potential unwinding of the outstanding OPEC-8 voluntary cuts (1.66 mb/d), of which Kuwait’s share is 128 kb/d.

Growth heading back into positive territory in 2025

Growth in total GDP is set to remain on a positive trajectory in the near term, buoyed by further steady expansion in non-oil economic activity and increased oil production. Non-oil GDP is set to benefit from the government’s reform drive which includes the recent passing of the debt law that could catalyze the implementation of key development projects and the potential approval of the ‘mortgage’ law later in 2025, which could spur higher household borrowing and consumer spending. Economic indicators for Q2 2025 pointed to a healthy pace of non-oil economic activity. The key ‘output’ and ‘new orders’ balances in the non-oil private sector PMI gauge both averaged a very robust 57+ in Q2 2025, real estate activity continued to expand at a robust pace with earlier price falls in the residential sector abating, while credit growth stood at a healthy 5.5% y/y in May, and could benefit in coming months if interest rates are reduced further.

Nonetheless, there are also downside risks to the outlook. Local consumer spending growth (according to central bank card transactions data) turned negative in Q1 2025, extending the weakening trend now observed for more than a year. The government’s ongoing fiscal consolidation push will also weigh on wage and job growth. Overall, we see GDP growing 1.9% this year, boosted by expansions in both the oil and non-oil sectors of 1.2% and 2.5%, respectively.

Chart 3: Contribution to non-oil growth

Chart 4: Oil production and oil GDP

Read this article as an archived PDF.

China: Deep History

Winston Churchill says somewhere (if we paraphrase) that the further back you are able to look, the more secure your ability to analyze the present and the future. Without these ‘historical smarts’, your sense of direction is very feeble. Let us use the novel, Lost Illusions, by Honoré de Balzac as a back door into historical smarts.

This novel was originally published in three parts between 1837 and 1843 and is set mostly in the 1820s, primarily in provincial France. It is unique because it starts with technology and commerce.

At the time when this story begins, the Stanhope press and inking-rollers were not yet in use in small provincial printing-offices. Angoulême, although its paper-making industry kept it in contact with Parisian printing, was still using those wooden presses from which the now obsolete metaphor ‘making the presses groan’ originated. Printing there was so much behind the times that the pressmen still used leather balls spread with ink to dab on the characters. The bed of the press holding the letter-filled ‘forme’ to which the paper is applied was still made of stone and so justified its name ‘marble’. The ravenous machines of our times have so completely superseded this mechanism — to which, despite its imperfections, we owe the fine books produced by the Elzevirs, the Plantins, the Aldi and the Didots — that it is necessary to mention this antiquated equipment which Jérôme-Nicolas Séchard held in superstitious affection; it has its part to play in this great and trivial story.

Not only do we get this conceptual framework about printing technology, but later on in the novel, Balzac gives us a further insight into paper-making and textiles, including a long discussion of China.

In England, where four-fifths of the population use cotton to the exclusion of linen, they make nothing but cotton paper. The cotton paper is very soft and easily creased to begin with, and it has a further defect: it is so soluble that if you seep a book made of cotton paper in water for fifteen minutes, it turns to a pulp, while an old book left in water for a couple of hours is not spoilt. You could dry the old book, and the pages, though yellow and faded, would still be legible, the work would not be destroyed.

“There is a time coming when legislation will equalize our fortunes, and we shall all be poor together; we shall want our linen and our books to be cheap, just as people are beginning to prefer small pictures because they have not wall space enough for large ones. Well, the shirts and the books will not last, that is all; it is the same on all sides, solidity is drying out. So this problem is one of the first importance for literature, science, and politics.

“One day, in my office, there was a hot discussion going on about the material that the Chinese use for making paper. Their paper is far better than ours, because the raw material is better; and a good deal was said about this thin, light Chinese paper, for if it is light and thin, the texture is close, there are no transparent spots in it. In Paris there are learned men among the printers’ readers; Fourier and Pierre Leroux are Lachevardiere’s readers at this moment; and the Comte de Saint-Simon, who happened to be correcting proofs for us, came in in the middle of the discussion. He told us at once that, according to Kempfer and du Halde, the Broussonetia furnishes the substance of the Chinese paper; it is a vegetable substance (like linen or cotton for that matter). Another reader maintained that Chinese paper was principally made of an animal substance, to wit, the silk that is abundant there. They made a bet about it in my presence. The Messieurs Didot are printers to the Institute, so naturally they referred the question to that learned body. M. Marcel, who used to be superintendent of the Royal Printing Establishment, was umpire, and he sent the two readers to M. l’Abbe Grozier, Librarian at the Arsenal. By the Abbe’s decision they both lost their wages. The paper was not made of silk nor yet from the Broussonetia; the pulp proved to be the triturated fibre of some kind of bamboo. The Abbe Grozier had a Chinese book, an iconographical and technological work, with a great many pictures in it, illustrating all the different processes of paper-making, and he showed us a picture of the workshop with the bamboo stalks lying in a heap in the corner; it was extremely well drawn.

“Lucien told me that your father, with the intuition of a man of talent, had a glimmering of a notion of some way of replacing linen rags with an exceedingly common vegetable product, not previously manufactured, but taken direct from the soil, as the Chinese use vegetable fibre at first hand. I have classified the guesses made by those who came before me, and have begun to study the question. The bamboo is a kind of reed; naturally I began to think of the reeds that grow here in France.

“Labor is very cheap in China, where a workman earns three halfpence a day, and this cheapness of labor enables the Chinese to manipulate each sheet of paper separately. They take it out of the mould, and press it between heated tablets of white porcelain, that is the secret of the surface and consistence, the lightness and satin smoothness of the best paper in the world. Well, here in Europe the work must be done by machinery; machinery must take the place of cheap Chinese labor. If we could but succeed in making a cheap paper of as good a quality, the weight and thickness of printed books would be reduced by more than one-half. A set of Voltaire, printed on our woven paper and bound, weighs about two hundred and fifty pounds; it would only weigh fifty if we used Chinese paper. That surely would be a triumph…

In 2025, we are to some extent, back to China, going from the proto-industrial world to our industrial and even digital world.

To educate oneself on all of this, you should look at the supreme scholarly achievement of the 20th century, namely Professor Joseph Needham’s masterpiece, Science and Civilisation in China.

India: Deep History

In his lectures, Professor Amartya Sen, the Harvard Nobel Prize in Economics winner, mentions Sir Mortimer Wheeler, Director-General of the Archaeological Survey of India. Wheeler wrote, while reporting on the excavation of the Indus Valley Civilization (of India), that the plumbing and sewerage were advanced, in some ways surpassing modern equivalents.

Sen’s larger point is that history is characterized by phases of rise and fall and not just classes and class struggles à la Marx.

Consider the following depiction of the East India Company, from The Anarchy: The Relentless Rise of the East India Company (also subtitled The East India Company, Corporate Violence, and the Pillage of an Empire) by William Dalrymple.


On 28 August 1608, Captain William Hawkins, a bluff sea captain with the Third Voyage, anchored his ship, the Hector, off Surat, and so became the first commander of an EIC vessel to set foot on Indian soil.

India then had a population of 150 million — about a fifth of the world’s total — and was producing about a quarter of global manufacturing; indeed, in many ways it was the world’s industrial powerhouse and the world’s leader in manufactured textiles. Not for nothing are so many English words connected with weaving — chintz, calico, shawl, pyjamas, khaki, dungarees, cummerbund, taffetas — of Indian origin. It was certainly responsible for a much larger share of world trade than any comparable zone and the weight of its economic power even reached Mexico, whose textile manufacture suffered a crisis of ‘de-industrialisation’ due to Indian cloth imports. In comparison, England then had just 5 per cent of India’s population and was producing just under 3 per cent of the world’s manufactured goods. A good proportion of the profits on this found its way to the Mughal exchequer in Agra, making the Mughal Emperor, with an income of around £100 million,* by far the richest monarch in the world.

The Mughal capitals were the megacities of their day: ‘They are second to none either in Asia or in Europe,’ thought the Jesuit Fr Antonio Monserrate, ‘with regards either to size, population, or wealth. Their cities are crowded with merchants, who gather from all over Asia. There is no art or craft which is not practised there.’ Between 1586 and 1605, European silver flowed into the Mughal heartland at the astonishing rate of 18 metric tons a year, for as William Hawkins observed, all nations bring coyne and carry away commodities for the same’. For their grubby contemporaries in the West, stumbling around in their codpieces, the silk-clad Mughals, dripping in jewels, were the living embodiment of wealth and power — a meaning that has remained impregnated in the word ‘mogul’ ever since.

By the early seventeenth century, Europeans had become used to easy military victories over the other peoples of the world.

* Over £10,000 million today.

Think of the larger point: what you just read is the story of Indian de-industrialization and its negative results. Ask yourself whether American de-industrialization is something of an echo of this, as manufacturing is offshored.

World-Watching: German Industry: Structural Change Underway

[from Deutsche Bank Research]

Production in major industrial sectors in Germany has developed very differently in recent years under the impact of the coronavirus pandemic and energy price shock. For example, manufacturing in electrical engineering rose by 18% compared with the start of 2015. In the chemical industry, there has been a 20% decline over the same period. The differences are not only cyclical, but also structural. In the future, it will be more important to distinguish between Germany as an industrial location and the German industry.

Read the Germany blog [archived PDF].

Economics-Watching: Texas Service Sector Activity Flat, Outlook Continues to Worsen

[from The Federal Reserve Bank of Dallas]

Growth in Texas service sector activity stalled in October, according to business executives responding to the Texas Service Sector Outlook Survey.

“Labor market indicators pointed to no growth in employment and a largely stable workweek,” said Jesus Cañas, Dallas Fed senior business economist. “Price pressures remained unchanged while wage growth eased slightly. Perceptions of broader business conditions continued to worsen in October, as pessimism notably increased.”

Key takeaways from the service sector survey:

  • The revenue index fell eight points to 0.7, with the near-zero reading suggesting little change in activity from September.
  • The employment index fell from 2.7 to 0.1, its lowest level in seven months.
  • The input prices index was flat at 37.3 and the selling prices index remained steady at 9.5.
  • The wages and benefits index fell two points to 17.0, approaching its average reading of 15.8.
  • The general business activity index dropped from -8.6 to -18.2, its lowest level since December of last year, while the company outlook index fell to -12.8, its lowest level in 16 months.

Texas Retail Sales Decline

“Retail sales declined again in October while retail labor market indicators reflected a contraction in employment and workweeks,” Cañas said. “Retail labor market indicators reflected flat employment and workweeks. Retailers’ perceptions of broader business conditions were mixed.”

Key takeaways from the retail survey:

  • The sales index fell from -4.4 to -18.1, marking its sixth consecutive month in negative territory.
  • The employment index fell 13 points to -12.4 while the hours worked index fell from 0.6 to -12.1.
  • The general business activity index dropped from -10.2 to -23.0.

The Dallas Fed conducts the survey monthly to obtain a timely assessment of activity in the state’s service sector, which represents almost 70 percent of the state’s economy and employs about 9.5 million workers.        

For this month’s survey, Texas business executives were asked supplemental questions on credit conditions. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together.

Read the special questions results.