R is for "Russia"
2022 will be remembered as the year that Russia waged war against its neighbor, Ukraine. The economic repercussions continue to have knock-on effects as the world lurches toward the new year. The US, Japan and other G7 states have tried to force Russia to the negotiating table with increasingly punitive sanctions. But Russian President Vladimir Putin appears unfazed. Even if a peace deal to end the conflict is struck, it would do little to repair geopolitical fissures, especially with western Europe announcing plans to permanently phase out Russian gas and oil.
A is for "alliance"
Japan will host a G7 summit from May 19 to 21 in Hiroshima, the hometown of Prime Minister Fumio Kishida. Around the world, the city is better known for the scenes of death and destruction that emerged in the wake of a nuclear bomb attack by the US in the final days of World War 2. The decision to make Hiroshima the venue for the meeting is a clear rebuke to Putin, who has repeatedly threatened to use nuclear weapons to bring Ukraine to heel. The alliance of the world's biggest economies remains a major obstacle to his warmongering ambitions.
B is for the Bank of Japan
Kuroda Haruhiko's long tenure as governor of the Bank of Japan comes to an end this spring, and there are indications his departure may herald the end of the loose money program he launched in 2013.
At its December meetings, the BOJ surprised the market by raising the upper limit on its 10-year yield to 0.5%, a decision that suggested the bank may finally be preparing to unwind its unprecedented quantitative easing policies. Market watchers are waiting to see if Kuroda's successor builds on this move by dropping the bank's controversial "yield curve control" policy.
I is for "inflation"
The new bank chief will come on deck after a year marked by Japan's steepest inflation in four decades. In November, the Ukraine conflict and other factors combined to drive consumer prices up by 3.7%, far in excess of the 2% target that Kuroda and his fellow policymakers spent years trying in vain to reach. Rampant inflation continues to dog many other economies, even as the US Federal Reserve and central banks in Europe reduce the pace and size of their interest rate hikes.
T is for "turmoil", "taxes" and "Taiwan"
Analysts expect 2023 to be a tumultuous year for the global economy. They forecast just 0.5% growth in the US and Europe. This raises the possibility of stagflation, a situation where prices remain high even as the economy dips, particularly in the EU. The US could face a similar fate if the Fed's decision to slow the pace of its rate hikes backfires. The Chinese economy is also expected to struggle, despite the recent move by Beijing to abandon its zero-COVID policy.
The biggest economic issue in Japan will be taxes. Prime Minister Kishida wanted to implement a tax hike to fund an increase in the defense budget that would lift spending to 2% of GDP. The plan proved deeply unpopular, however, even among some members of Kishida's Liberal Democratic Party. In response, the ruling coalition said it would shelve the tax hikes for at least a year to allow for a debate on the matter.
Another big concern will be the simmering tensions between the US and China over Taiwan. The White House was initially vocal in its opposition to what it claimed where Beijing's intentions to accelerate plans for an invasion of Taiwan. But President Joe Biden has toned down his rhetoric since a mid-November meeting with President Xi Jinping, saying he sees no "imminent" threat of a Chinese invasion. The comment appears to have smoothed over the issue for now, but as always with these two global powers, the risk of another flare-up is never far away.