Japan to hold out for better US trade deal

Today’s agenda: Trump on Ukraine deal; Ofwat’s offers for investors; Nvidia’s Shanghai R&D centre; AI groups focus on memory; Kyiv’s lost millions for weapons; and Merz on Alternative for Germany

Good morning. We begin with Japan, which has signalled it is prepared to hold out for a better deal with US President Donald Trump over trade tariffs, pushing for full removal of his 25 per cent duty on imports of Japanese cars rather than risk a domestic political backlash.

In a bind: The US’s biggest outside investor and closest ally in Asia is keen to avoid any souring of relations with Washington. But pressure from business leaders and members of Prime Minister Shigeru Ishiba’s own Liberal Democratic party to reject any agreement that puts the country’s automotive sector at risk or threatens domestic farmers has forced him to recalculate, officials and analysts said.

Officials said a deal was now unlikely to be reached before elections for Japan’s upper house of parliament that are due by late July and are already expected to be difficult for Ishiba’s highly unpopular administration. 

Why the two sectors: The automotive and auto parts sectors are the biggest exporters from Japan to the US. The Trump tariffs’ impact on the operating profits of the country’s top auto companies is expected to be about ¥2tn ($13.7bn) in the current financial year. Japan’s domestic agriculture industry, also a big employer, is something Ishiba said he would not sacrifice. However, it remains unclear how much leverage Tokyo has over the White House. Read more on how the Ishiba administration’s political standing is complicating its negotiating hand.

Here’s what else we’re keeping tabs on today and over the weekend:

• Economic data: Germany publishes first-quarter labour market figures and Italy releases inflation data for April, while the University of Michigan issues its latest US consumer survey.

• EU-UK relations: UK Prime Minister Sir Keir Starmer is expected to meet bloc leaders in the Albanian capital of Tirana for last-ditch talks to end an impasse over a post-Brexit “reset”.

• Trump trip: The US president participates in a business event and visits the Abrahamic Family House in Abu Dhabi on the final day of his Gulf tour.

• European elections: Poland holds the first round of voting for its next president on Sunday, while snap parliamentary elections take place in Portugal and Romania conducts a closely watched presidential election run-off.

• Results: Future, Land Securities and Swiss Re report.

How well did you keep up with the news this week? Take our quiz.

Five more top stories

1. The UK’s water watchdog has promised investors revenue guarantees, no competition and minimal risk as it tries to drum up more than £50bn for projects to address shortages. Investors will have the “right to collect” revenues from customers and “investment positive” support from the government, according to an Ofwat briefing paper seen by the Financial Times. Gill Plimmer has the full report.

2. Trump has said that “nothing is going to happen” on a Russia-Ukraine peace deal until he and Vladimir Putin meet. The US president’s comments damped expectations for talks between Russian and Ukrainian ministers due in Turkey, their first meeting since 2022.

3. Nvidia is seeking to build a research and development centre in Shanghai that would help the world’s leading maker of artificial intelligence processors stay competitive in China, where its sales have slumped due to tightening US export controls. Read details on the plans here.

4. OpenAI, Google, Meta and Microsoft have stepped up their focus on memory in recent months, releasing upgrades that enable their chatbots to store a larger amount of user information to personalise their responses, as they fight for customers in a competitive market. But critics have warned the development could also be used to exploit users.

5. UK ministers are considering cutting the £20,000 tax-free cash Isa allowance but debating with City of London figures the level at which it should be capped, according to two people familiar with the situation. City groups have strongly lobbied for reducing the tax-free cash allowance, seeing it as a way to attract money into equity funds and domestic shares.

Join us for a subscriber-only webinar on May 28 for insights into the most consequential geopolitical rivalry of our time: the US-China showdown. Register now and put questions to our panel.

The Big Read

Desperate to source munitions for its war with Russia, Ukraine paid foreign brokers for weapons and shells that were unusable or never arrived. An FT investigation uncovers how Kyiv lost hundreds of millions of dollars on arms deals gone wrong.

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