Note: The Global Morning Briefing summarizes global news reported by Seoul Economic Daily.
Treasury Yields and Dollar Rise Together, Raising Risk of Clash With Trump
Federal Reserve Chair Kevin Warsh delivered his clearest hawkish message since taking office at the Jackson Hole meeting, turning market attention to whether the Fed will actually raise rates at next month's Federal Open Market Committee meeting.
Warsh said in a speech on the 28th that inflation poses a more serious challenge than employment, and that he would act if underlying inflation does not converge on the 2% target quickly enough, according to Reuters and The Wall Street Journal on the 29th.
The Treasury market reacted immediately after the speech. The two-year yield, sensitive to monetary policy, jumped to 4.35% during the session, its highest in a month, while the 10-year yield, the global bond benchmark, rose to 4.72%. The 30-year yield, however, held little changed at around 5.20%. The dollar index, which tracks the currency against six major peers, rose 0.55% to 99.7.
Financial markets are leaning toward the view that Warsh could push through a rate increase as early as the September 16 FOMC meeting. Fed funds futures on the 29th put the odds of a quarter-point increase at the FOMC meeting on the 15th and 16th of next month at 57.0%, up from 39.9% a week earlier, according to CME FedWatch. The probability of a hold fell to 43.0% from 60.1%. The Financial Times said the move could set the Fed on a collision course with President Donald Trump.
Some on and off Wall Street say Warsh may find it difficult to raise rates before the November midterm elections given Trump's preferences. In his speech, he signaled a willingness to tighten while repeatedly distancing himself from an actual increase. The Fed's history of avoiding sharp rate moves just before elections is also seen as a constraint.
Treasury Secretary Scott Bessent has rolled out a series of measures, including yen purchases and expanded Treasury buybacks, to prevent a sharp rise in long-term yields that would add to the national debt burden. Against that backdrop, a Fed rate increase could send mixed signals to markets as well as spark conflict with the White House.
Kenneth Rogoff, an economics professor at Harvard University, told the U.S. political outlet Politico on the 29th that changing rates before an election is always difficult, because either the Republicans or the Democrats will blame the decision-maker for years to come.
TS Lombard, a British macroeconomic research firm, said the market signaled its view through rising long-term yields after the Fed's July hold, and that Warsh accepted that signal in his Jackson Hole remarks. The long-term bond market will keep pointing to the policy direction that is needed, the firm said, and the variable is whether the Fed can respond to that signal quickly enough.
Read the Wind in Washington First: Heritage Foundation's Advice to Korean Startups
Anthony Kim, a research fellow at the Heritage Foundation, a conservative U.S. think tank, advised Korean startups seeking to enter the U.S. market to read the mood in Washington accurately.
Speaking at Korea Conference 2026 in Los Angeles on the 28th, Kim stressed the importance of grasping the political climate, saying one needs to know which way the wind is blowing in Washington and whether it is spring, summer, autumn or winter. Having studied trade and international economics and politics for nearly 30 years, and having worked on the Korea-U.S. partnership and economic and security issues, Kim said the advice bears directly on startups' day-to-day work.
Kim described the tone of the second Trump administration as "organized chaos." He said Trump's second term is far more organized than his first but just as chaotic, and that the organized chaos is deepening. He added that this pattern would be seen more often over the remaining two years of Trump's term, including the midterm elections.
Kim pointed to building networks as the way to navigate that uncertainty. He said the Trump administration has multiple layers of gatekeepers, and that Trump himself is an entrepreneurial builder and connector, adding that the work of connecting ideas and institutions through conferences and networking matters.
Korea Conference is a nonprofit founded by Chairwoman Jenny Joo, who spent 28 years on Wall Street, and supports networking for Korean startups entering the U.S. market. The event also brought news that Asleep, with support from Korea Conference, will introduce an artificial intelligence sleep solution at a Bali hotel with Indonesia's Lippo Group.
U.S. Defense Department Takes Direct Stake in Venezuelan Oil Fields
President Donald Trump has signed an oil deal that assigns the U.S. Defense Department a direct stake in Venezuela's crude reserves.
The Wall Street Journal reported on the 29th that the U.S. government has shifted its role in the transaction from investment intermediary to direct investor.
The shift toward the government securing control directly came after private U.S. companies proved reluctant to invest in Venezuela's oil industry.
Trump said a day earlier that he had secured control of large oil fields in Venezuela. The move is seen as an effort to lower oil prices ahead of the November midterm elections, with the war against Iran dragging on.
On the social media platform Truth Social, Trump said he had struck the largest oil deal in the history of Venezuela and the world, and that through partnerships with private companies the U.S. had secured majority control of more than 65 billion barrels of proven oil reserves in Venezuela at no cost to American taxpayers. Delcy Rodriguez, Venezuela's interim president, expressed hope the deal would contribute to modernizing the country's industry and to economic growth.
Venezuela's government will grant private company North American Blue Energy Partners 100-year development rights to 17 oil fields, according to a person cited by the Journal. The U.S. will take a 35% stake in NABEP and also gain the right of first refusal to buy 20% of the company's crude output at cost.
The NABEP stake will be held by the Office of Strategic Capital under the Defense Department, which plans to structure the investment using a "penny warrant" arrangement that allows it to acquire the stake without a substantial capital outlay.
Weak Yen and Inflation Push Japan's Defense Procurement Costs Up as Much as 70%
A weaker yen and rising prices have driven the cost of Japan's defense equipment procurement up by as much as 70% from the levels assumed when its plan was drawn up.
The Nihon Keizai Shimbun reported on the 30th, citing an interim assessment by Japan's Defense Ministry, that prices for major defense equipment under the current defense buildup plan for fiscal 2023 to 2027 have risen 40% to 70% above initial projections, raising concerns that Japan may not be able to secure the equipment it needs to strengthen security and defense capabilities as planned.
In detail, the U.S.-made F-35B fighter jet rose about 35% to 24.2 billion yen (about 208.7 billion won) each this year from 17.9 billion yen (about 154.3 billion won) in fiscal 2023, while Japan's P-1 patrol aircraft jumped 50% to 46 billion yen (about 396.7 billion won) from 30.5 billion yen (about 263 billion won).
Prices for the UH-2 helicopter and patrol vessels each rose 60% to 70%. The ministry attributed the increases to inflation and the weak yen. Japan's producer price index rose about 17% to 134.5 in May this year from an average of 114.9 in 2022, and the exchange rate, which stood at 108 yen to the dollar when the procurement plan was drawn up, surged to the 157-163 yen range last month.
Because the buildup plan sets a five-year total in advance, higher unit prices inevitably mean fewer items can be secured with the same budget. The Maritime Self-Defense Force had planned to budget for 12 escort vessels over five years but had funded only eight through fiscal 2026, while only seven of a planned 13 aerial refueling and transport aircraft have been budgeted.
The Japanese government is pushing to revise its three key security documents, including the defense buildup plan, and the impact of a larger nominal gross domestic product is also expected to be unavoidable. When Japan revised the three documents in 2022, it decided to raise defense-related spending to 2% of GDP by fiscal 2027, a target it met early in fiscal 2025. Even if the size of defense spending stays the same, a rising nominal GDP lowers the ratio, so which year's GDP is used as the benchmark is likely to become a point of contention.
