What matters today
1 Tokyo core CPI falls to 1.8% YoY in February — below BOJ’s 2% target for first time since Oct 2024; Takaichi utility subsidies driving disinflation; BOJ rate hike case weakens as government simultaneously nominates two dovish board members; Nikkei hits all-time high at 58,850
2 PBOC scraps FX forward reserve ratio entirely — cuts from 20% to 0% effective March 2; reverses September 2022 capital-flight defense; signals Beijing wants to slow yuan appreciation past 6.85/USD; onshore and offshore yuan drop immediately
3 North Korea’s 9th Party Congress concludes — Kim re-elected general secretary; 40% of Central Committee replaced; Kim Yo Jong promoted to full department director; daughter Kim Ju Ae in matching leather jacket fuels succession signals; new 5-year military plan vows expanded nuclear arsenal and ICBM modernization
4 India-Israel elevate ties to “special strategic partnership” — Modi signs ~20 MOUs during first Israel visit in 9 years; FTA negotiations launched; $8.7B defence package includes SPICE-1000 kits and Rampage missiles; India continues dual-track balancing Russian oil against US deal
5 South China Sea trilateral drills conclude — Philippines, US, and Japan wrap 15th MMCA near Bashi Strait; Chinese navy vessels shadow but no incidents; meanwhile Philippines-China rapprochement signals: joint coastguard patrol MOU expected by March; SCS code of conduct targeted for December
01
Market Snapshot
Market Snapshot
| Pair / Index | Level | Day Chg | Signal |
|---|---|---|---|
| Nikkei 225 | 58,850 | +0.16% | ▲ All-time high; +10.4% in Feb; Takaichi trade drives rotation |
| Kospi | 6,244 | -1.0% | ▼ Tech pullback after Nvidia sell-the-news; SK Hynix -3.5% |
| Hang Seng | 26,653 | +1.0% | ▲ PBOC FX easing boosts sentiment; consumer stocks lead |
| USD/JPY | 156.13 | -0.20% | ▶ Yen firms on CPI beat vs consensus; BOJ policy tension |
| USD/CNY | 6.85 | +0.3% | ▼ Yuan weakens on PBOC FX reserve cut; deliberate easing |
| Gold | $5,238/oz | -0.5% | ▼ Mild pullback; PBoC buying streak at 15 consecutive months |
| Brent Crude | $71.19/bbl | +0.7% | ▲ India-Russia crude flows uncertain after US trade deal |
| S&P/ASX 200 | 9,199 | +0.25% | ▲ RBA hold at 3.85% expected March; hot CPI data lingers |
| USD/INR | ~85.5 | Flat | ▶ Post-trade deal stability; Israel FTA adds long-term upside |
02
Conflict & Stability Tracker
Conflict & Stability Tracker
Critical
South China Sea
Philippines-US-Japan trilateral drills (Feb 20–26) conclude near Bashi Strait. China warns Philippines after sea clash. Joint coastguard patrol MOU with Beijing expected by March — dual-track diplomacy and deterrence strategy.
Tense
Korean Peninsula
Yoon sentenced to life for insurrection (Feb 19). Kim’s 9th Congress unveils 2026–30 military plan — expanded nuclear arsenal, ICBM modernization. Kim declares inter-Korean relations “most hostile state-to-state” — no return to dialogue.
Tense
Taiwan Strait
Japan Type-12 missile deployment to Kyushu (1,000km range) operational March 2026 — first counterstrike capability since 1945. ¥9T ($58B) record defence budget. Takaichi: JSDF could intervene if China acts on Taiwan. Beijing warns Japan “deviating from peaceful development.”
Watching
Pakistan-Afghanistan Border
Pakistani air strikes in Nangarhar, Afghanistan continue. NDMA warns of glacial lake outburst flood risk March–June 2026 as temperatures rise in Gilgit-Baltistan and Upper Khyber Pakhtunkhwa. Flash flood risk rising.
03
Fast Take
Fast Take
MACROTokyo core CPI at 1.8% YoY — below BOJ 2% target for first time since 2024. Headline CPI at 1.6%. Government utility subsidies driving disinflation. BOJ Governor Ueda says further hikes conditional on data but board member Takata insists rate increases needed. Market now pricing March hold.
FXPBOC cuts FX risk reserve ratio to 0% from 20%, effective March 2. The move makes it cheaper for banks to buy dollars via forwards — a clear signal Beijing views yuan at 6.85 as too strong. Both onshore and offshore yuan fell immediately. Reverses crisis-era September 2022 measure.
DEFENSEIndia’s DAC approved $8.7B Israeli precision-strike weapons package including 1,000 SPICE-1000 kits and Rampage air-to-surface missiles. India’s FY2026–27 defence budget hits ₹7.85 lakh crore ($87B), up 15.19%. Capital outlay rises 21.8% to ₹2.19 lakh crore.
TRADEIndia-US trade deal (Feb 2) sees tariffs cut from 50% to 18% after India agreed to halt Russian crude imports and expand US energy/agri purchases. India-EU FTA signed last week valued at $27B. India-Israel FTA talks now open — triple trade architecture emerging.
HEALTHNipah virus alert contained — 2 confirmed healthcare worker cases in West Bengal since December; 196 contacts traced and all negative. Airport screenings in Thailand, Singapore, Nepal, Pakistan. WHO assesses global risk as low. No vaccine exists.
MINERALSChina’s critical minerals suspension runs through Nov 27, 2026 — gallium, germanium, antimony export bans paused under licensing. Military end-use ban to US remains. Pentagon’s DARPA OPEN programme targets same minerals with AI-derived pricing across 50+ nation tariff bloc.
04
Developments to Watch
Developments to Watch
1 · Tokyo CPI Drops Below BOJ Target — Rate Hike Case Crumbles
Tokyo core CPI rose just 1.8% year-on-year in February, slipping below the Bank of Japan’s 2% target for the first time since October 2024. Headline inflation came in at 1.6%. The deceleration is driven primarily by Prime Minister Sanae Takaichi’s utility subsidies, which are suppressing energy costs and pulling down the overall inflation gauge. The data arrives at a critical moment for the BOJ. Governor Kazuo Ueda reiterated this week that further tightening remains on track if the economic outlook strengthens, but the inflation data is moving the other direction. Compounding the dovish pressure: the government this week nominated two reflation-leaning academics — Ayano Sato and Toichiro Asada — to the BOJ policy board, replacing outgoing members whose terms expire in March and June. The appointments signal that Takaichi’s Abenomics-style growth-and-spending priority will increasingly constrain the central bank’s ability to hike. Markets are now pricing a March hold at 0.75%. The Nikkei has surged 10.4% in February alone, closing at a record 58,850, fueled by the “Takaichi trade” — a bet on looser monetary policy, yen weakness, and fiscal expansion. The question: has Takaichi effectively boxed the BOJ into a corner where rate hikes become politically impossible even if underlying inflation re-accelerates?
2 · PBOC Zeroes Out FX Reserve Ratio — Yuan Management Enters New Phase
The People’s Bank of China announced Friday it will scrap the foreign exchange risk reserve ratio for forward FX sales entirely — cutting it from 20% to 0% effective March 2. This is the single most significant FX policy signal from Beijing since the September 2022 decision to raise the ratio to stem capital flight during the yuan’s rapid depreciation. The reversal reflects a completely different problem: the yuan has strengthened past the psychologically important 7-per-dollar level and continued appreciating into 2026, now trading near 6.85. By eliminating the reserve requirement, the PBOC reduces the cost for commercial banks selling foreign exchange forward to their clients, effectively making it cheaper for Chinese enterprises to buy dollars. Following the announcement, both onshore and offshore yuan fell. Analysts at China Daily described the move as signaling efforts to ease rapid renminbi appreciation. The strategic logic is multifaceted: a yuan that’s too strong hurts China’s export competitiveness precisely when global trade conditions are deteriorating under US tariff escalation. It also gives Beijing room to manage the currency lower without resorting to more aggressive intervention. For investors: this is not a devaluation. It is a recalibration — Beijing removing the emergency brake it installed three years ago and signaling that two-way fluctuation, not perpetual appreciation, is the desired outcome.
3 · North Korea’s 9th Party Congress — Power Consolidated, Succession Signals
North Korea’s most significant political gathering closed this week after seven days in Pyongyang, delivering the expected outcomes — Kim Jong Un re-elected as Workers’ Party general secretary, a new five-year plan, expanded nuclear commitments — but the personnel moves reveal the real story. Of 138 sitting Central Committee members, 40% were replaced. Former missile development chief Ri Pyong Chol, once considered untouchable, was dropped. So was veteran diplomat Kim Yong Chol, the architect of the 2018–2019 US engagement. Kim’s sister, Kim Yo Jong, was elevated from deputy to full department director — likely heading the propaganda apparatus that controls inter-Korean messaging. The most watched moment came at the closing military parade on Wednesday: Kim’s teenage daughter Kim Ju Ae appeared alongside him wearing a matching black leather jacket. South Korea’s National Intelligence Service has assessed that Kim Ju Ae has entered the “designation stage” of succession, having visited the Kumsusan Palace of the Sun and appearing at the top of the protocol order. On substance: Kim declared inter-Korean relations the “most hostile state-to-state relationship” and vowed to expand strategic weapons targeting South Korea specifically, alongside continued ICBM modernization for 2026–2030. He rejected any return to dialogue with Seoul. Market implication: the Korean risk premium remains structurally embedded. The 9th Congress has consolidated Kim’s internal position and locked in a confrontational external posture for the next five years.
4 · India-Israel “Special Strategic Partnership” — Modi’s Triple Trade Architecture
Modi’s first Israel visit in nine years concluded Thursday with roughly 20 memoranda of understanding, formally elevating bilateral ties to a “special strategic partnership.” The agreements span defence co-development, AI, agriculture, cybersecurity, and water technology. India and Israel launched free trade agreement negotiations on Monday, with merchandise trade at $3.62 billion in 2024–25 and significant upside in defence — India is already one of Israel’s top arms customers. Modi addressed the Knesset, affirmed that India stands “firmly” with Israel, and announced that India will “give final shape to a mutually beneficial FTA.” The defence dimension is substantial: India’s Defence Acquisition Council approved an $8.7B package of Israeli precision-strike weapons including 1,000 SPICE-1000 kits and Rampage air-to-surface missiles. This integrates with India’s FY2026–27 defence budget of ₹7.85 lakh crore ($87B), up 15% year-on-year. The broader picture: in February alone, India has signed trade deals with the US (tariffs cut to 18%), the EU ($27B FTA), and now initiated FTA talks with Israel. This triple architecture is reshaping India’s trade posture from “strategic autonomy” to “strategic selectivity” — choosing partners, locking in market access, and building redundancy against any single relationship. The unresolved tension: India’s commitment to halt Russian oil purchases (a condition of the US deal) remains ambiguous, with CNBC analysis suggesting the Supreme Court tariff ruling may let India continue buying Russian crude regardless.
5 · Japan Deploys Counterstrike Missiles — First Since 1945
Japan’s Type-12 surface-to-ship missile, upgraded to a 1,000-kilometre range, will begin operational deployment at Camp Kengun in Kumamoto Prefecture, Kyushu, by March 2026 — one year ahead of schedule. This is Japan’s first domestically developed long-range missile and the foundation of its counterstrike capability, a term that was politically radioactive a decade ago. The Defence Ministry’s FY2026 budget of ¥9.04 trillion ($58B) — a record for the 12th consecutive year — allocates ¥973 billion to standoff missile capabilities alone. Ship-launched and air-launched variants follow in FY2027. Japan is also procuring 400 US Tomahawk cruise missiles (1,600km range) and developing hypersonic glide vehicles. The strategic context is clear: this is the first island chain defence being built in real time. Takaichi’s government has stated explicitly that Japan’s Self-Defence Forces could intervene if China acts militarily on Taiwan. Beijing’s response was direct — warning that Japan is “deviating from peaceful development.” But the Takaichi administration has pushed defence spending toward the NATO 2% GDP target two years ahead of schedule, and the new CFIUS-style foreign investment screening body will complement the military buildup with economic security measures targeting Chinese investment in critical infrastructure.
6 · South China Sea — Dual-Track Diplomacy Tests Manila’s Balancing Act
The Philippines is running two simultaneous, seemingly contradictory South China Sea strategies — and both moved forward this week. On the military track: the 15th Multilateral Maritime Cooperative Activity (MMCA), involving Philippine, US, and Japanese naval forces, concluded February 26 after four days of exercises near the Bashi Strait. The Philippine Navy deployed the frigate BRP Antonio Luna alongside FA-50 fighters; the US contributed the guided-missile destroyer USS Dewey and a P-8A Poseidon; Japan provided a P-3C Orion. Chinese navy vessels were observed shadowing the exercises but no incidents occurred. On the diplomatic track: Senate Foreign Relations Chairman Erwin Tulfo met Chinese Ambassador Jing Quan this week and announced that the two countries’ coastguards would sign a joint patrol memorandum by end of March. The arrangement would cover patrols, search and rescue, and environmental operations. Tulfo separately stated that China is “very excited” about finalizing the South China Sea Code of Conduct under Manila’s ASEAN chairmanship, with a December target. The dual-track approach reflects the reality that confrontation and cooperation coexist in the South China Sea. But the internal tensions are visible: a leaked foreign secretary letter exposed a fault line between the military’s “transparency initiative” (publicly documenting Chinese aggression) and the foreign ministry’s preference for quiet diplomacy. The Philippine officials who visited Thitu Island on February 21 had their phones display “Welcome to CHINA” — a reminder that Beijing’s territorial assertions are granular, persistent, and technological.
05
Sovereign & Credit Pulse
Sovereign & Credit Pulse
| Country | Rating | Outlook | Key Driver |
|---|---|---|---|
| Japan | A+ (S&P) | Stable | Fiscal expansion vs fiscal sustainability; record defence budget; Nikkei record but debt/GDP 260%+ |
| South Korea | AA (S&P) | Stable | Post-Yoon institutional recovery; BOK holds at 2.5%; democratic resilience offset by political polarization |
| India | BBB- (S&P) | Stable | Triple FTA architecture (US/EU/Israel) transforming trade profile; $87B defence budget; Russian oil ambiguity |
| Philippines | BBB+ (S&P) | Stable | ASEAN chair 2026; SCS code of conduct target Dec; dual-track diplomacy tests investor confidence |
06
Power Players
Power Players
Sanae Takaichi PM, Japan
Dominating Japan’s economic trajectory — utility subsidies driving disinflation, dovish BOJ nominees undermining independent monetary policy, record defence budget, snap election supermajority delivering unchecked legislative power. The “Takaichi trade” has become the dominant factor in Asian equity markets.
Dominating Japan’s economic trajectory — utility subsidies driving disinflation, dovish BOJ nominees undermining independent monetary policy, record defence budget, snap election supermajority delivering unchecked legislative power. The “Takaichi trade” has become the dominant factor in Asian equity markets.
Kim Jong Un General Secretary, DPRK
Re-elected at 9th Congress with 40% Central Committee turnover. Purged veteran diplomats, elevated sister Kim Yo Jong, showcased daughter as succession signal. Five-year military plan locks in confrontation with South Korea. Rejects all dialogue overtures.
Re-elected at 9th Congress with 40% Central Committee turnover. Purged veteran diplomats, elevated sister Kim Yo Jong, showcased daughter as succession signal. Five-year military plan locks in confrontation with South Korea. Rejects all dialogue overtures.
Narendra Modi PM, India
Most diplomatically active leader in February — signed US trade deal (Feb 2), EU FTA, and Israel strategic partnership with ~20 MOUs. Building triple FTA architecture. Knesset address, $8.7B Israeli weapons package, ₹7.85T defence budget. Pivoting from “strategic autonomy” to “strategic selectivity.”
Most diplomatically active leader in February — signed US trade deal (Feb 2), EU FTA, and Israel strategic partnership with ~20 MOUs. Building triple FTA architecture. Knesset address, $8.7B Israeli weapons package, ₹7.85T defence budget. Pivoting from “strategic autonomy” to “strategic selectivity.”
Pan Gongsheng PBOC Governor
Scrapping the FX reserve ratio entirely — strongest signal yet that Beijing views yuan appreciation as an economic threat. Managing the currency lower without triggering market panic. Balancing domestic stimulus against Trump tariff escalation.
Scrapping the FX reserve ratio entirely — strongest signal yet that Beijing views yuan appreciation as an economic threat. Managing the currency lower without triggering market panic. Balancing domestic stimulus against Trump tariff escalation.
Kazuo Ueda BOJ Governor
Increasingly boxed in by Takaichi’s policy framework — CPI falling below target, dovish board nominees arriving, fiscal expansion running. Maintains rhetoric on “gradual tightening” but the data and politics are moving against him. March and April meetings are the test.
Increasingly boxed in by Takaichi’s policy framework — CPI falling below target, dovish board nominees arriving, fiscal expansion running. Maintains rhetoric on “gradual tightening” but the data and politics are moving against him. March and April meetings are the test.
07
Regulatory & Policy Watch
Regulatory & Policy Watch
China
PBOC FX Reserve Ratio Scrapped
PBOC FX Reserve Ratio Scrapped
Forward FX sales reserve cut from 20% to 0% effective March 2. Reduces hedging costs for enterprises. Signal: yuan appreciation to be curbed. Watch for further easing if currency continues strengthening.
Japan
CFIUS-Style Foreign Investment Screening
CFIUS-Style Foreign Investment Screening
Takaichi announced creation of foreign investment screening body modelled after US CFIUS. Will complement existing Foreign Exchange and Foreign Trade Act. Targets Chinese investment in critical infrastructure and defence supply chains. Part of first-ever defence industry strategy expected by end of 2026.
India
India-US Trade Framework & Russian Oil
India-US Trade Framework & Russian Oil
Framework trade deal signed Feb 2 faces congressional opposition. US imposed 125.87% duty on Indian solar modules. Congress MP Jairam Ramesh demands deal be placed on hold. India reportedly agreed to stop buying Russian oil and explore Venezuelan crude, but Supreme Court tariff ruling may undercut enforcement leverage.
Australia
RBA Policy Path — March Hold Expected
RBA Policy Path — March Hold Expected
RBA hiked to 3.85% in February after persistent inflation. CBA, NAB, Westpac now forecast May hike to 4.10% if data stays hot. January CPI at 3.8% YoY headline, 3.4% trimmed mean — both above the 2–3% target midpoint. Consensus: March hold, risks tilted hawkish.
08
Calendar & Watchlist
Calendar & Watchlist
| Date | Event | Impact |
|---|---|---|
| Mar 2 | PBOC FX reserve ratio cut takes effect | Watch USD/CNY reaction; first test of new regime |
| Mar | Japan Type-12 missile first deployment at Camp Kengun | Beijing reaction; first counterstrike capability operational |
| Mar | China NPC annual session — fiscal stimulus package | Budget deficit target, local government bonds, property rescue |
| Mar 16–17 | RBA policy meeting — hold at 3.85% expected | Inflation persistence key; May hike to 4.10% if hot data |
| End Mar | Philippines-China coastguard joint patrol MOU target | First joint maritime cooperation since tensions escalated |
| End Mar | BOJ outgoing board member Asahi Noguchi term expires | Dovish replacement Ayano Sato shifts board balance |
09
Bottom Line
Bottom Line
Two central banks, two opposite problems, one shared conclusion: political gravity is bending monetary policy across Asia’s two largest economies. In Tokyo, Takaichi’s utility subsidies have pulled CPI below the BOJ’s 2% target while her dovish board nominees are arriving to ensure rate hikes stay theoretical. The Nikkei’s 10% February rally is the market’s verdict — growth and spending win, monetary orthodoxy loses. In Beijing, the PBOC is dismantling capital-flight defences built during the 2022 yuan crisis because the currency is now too strong, not too weak. Zeroing the FX reserve ratio is the most explicit signal yet that Beijing will not tolerate a yuan that prices Chinese exports out of global markets — especially with Trump’s tariff architecture targeting the very trade surplus that appreciation reflects.The security map is no less consequential. North Korea’s 9th Party Congress has locked in a five-year confrontational posture — 40% Central Committee turnover, expanded nuclear commitments, inter-Korean dialogue permanently closed. The succession signals around Kim Ju Ae add a dynastic dimension that extends the strategic planning horizon for anyone modelling Korean Peninsula risk. Japan’s response is symmetric and historic: the Type-12 deployment in March will be the first counterstrike capability deployed since 1945, backed by a ¥9 trillion defence budget and 400 incoming Tomahawk missiles. The first island chain is being fortified in real time.
India’s February diplomacy has been the most consequential of any Asian power. The US deal (18% tariffs), the EU FTA ($27B), and the Israel partnership (~20 MOUs + FTA launch) constitute a deliberate architecture of redundancy — ensuring that no single partner can exercise leverage over India’s trade posture. The unresolved question — whether India actually stops buying Russian oil — will determine whether this architecture is coherent or contradictory.
In the South China Sea, the Philippines is running the most interesting experiment in Asian diplomacy: simultaneous military deterrence with the US and Japan alongside a rapprochement with China that could produce joint coastguard patrols by March. If Manila can hold both tracks, it may have discovered the operating model for small states navigating great-power competition. If it can’t, the “Welcome to CHINA” phone alert on Thitu Island is a preview of what comes next.
Asia Intelligence Brief for Friday, February 27, 2026