The Yuan and Yen Need the Fed’s Help. They Might Not Get It.
Being a loose monetary policy outlier is an uncomfortable place to be these days
3 min
All eyes are on the Federal Reserve meeting this week. Central bankers at Asia’s two largest economies will be paying extra attention.
The Chinese yuan and Japanese yen are both hovering at their lowest levels against the dollar in more than a decade. The yuan has lost 13% versus the dollar since the beginning of 2022 while the yen has dropped 22%.
Both countries are grappling with weakening currencies—but their economies are in quite different situations. China must ward off deflation as its real estate implosion continues to weigh on industry and consumer sentiment. Japan, on the other hand, is contending with its highest inflation in decades.
Yet there are some important similarities too. Both countries’ central banks have pursued relatively loose monetary policies as growth challenges have mounted—in contrast with most other developed economies, which have been raising rates rapidly. China has been cutting interest rates and the amount of cash banks must hold in reserve to juice up its economy. Japan is hesitant to give up its longstanding policy of targeting ultra low interest rates in fear that the country could eventually slip back into deflation or near-deflation, too—a problem it wrestled with for years in the wake of its own burst asset bubble in the 1990s.
Widening interest rate differentials with the U.S. have put both currencies under pressure. Yields on Japan’s 10-year government bonds are 3.6 percentage points lower than on U.S. equivalents. The difference between Chinese and U.S. bonds is 1.7 points.
Both currencies have nonetheless staged a modest rebound from their lows lately. The People’s Bank of China warned speculators not to bet against the yuan earlier this month. Around the same time, Bank of Japan Gov. Kazuo Ueda told domestic media that an end to the BOJ’s negative rate policy could be in the cards if its 2% inflation target is sustained.
The risk of capital outflows probably makes China uneasy. It saw net outflows pick up to $42 billion in August, the fastest pace since 2016, according to Goldman Sachs. Given the country’s semi-closed capital account, there are many tools it can employ to slow the pace of depreciation. Borrowing costs for the offshore yuan have gone up, which could deter some short-term speculators.
Yet ultimately, economic fundamentals—and monetary policy—will still drive the yuan’s trend. While the Fed looks likely to pause its rate increases, a stronger-than-expected economy could keep U.S. rates higher for longer. To stabilise its economy, China will likely need more monetary and fiscal stimulus than has been unveiled so far—meaning an even higher interest rate differential and probably, higher imports once fiscal stimulus starts to kick in. Both of those will tend to weigh on the currency, especially if U.S. rates stay parked at their current high level in 2024.
In Japan, meanwhile, the central bank looks likely to tighten eventually as it becomes more confident that inflation—at a low level—has become more baked into households’ expectations. Japan’s core inflation, which excludes fresh food, has stayed above the central bank’s 2% target for more than a year already. Japan’s 10-year government bond yields rose to their highest level since 2014 recently.
China and Japan’s plunging currencies may chart different paths going forward—especially since the yen is already down so far against the dollar over the past two years. But they could both use an assist from the Fed, which may not be forthcoming for quite a while.
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From making unpopular decisions to learning when to listen, leaders from five businesses reveal what nobody prepared them for — and how running a company has challenged their expectations.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Elon Musk is exploring a potential merger between Tesla and SpaceX, a deal that could reshape the future of AI, robotics, autonomous vehicles and space technology. With a combined valuation potentially reaching $3.5 trillion, the move could bring Musk’s vision of an interconnected technology ecosystem closer to reality, although a deal remains uncertain.
5 min
Elon Musk has engineered ties between Tesla TSLA 3.41%increase; up pointing triangle and SpaceX SPCX 7.79%increase; up pointing triangle that are hard to break, and now he wants to fuse them together permanently.
Musk has run both Tesla and SpaceX concurrently over the past two decades, using a schedule that dictated which days he spent focused on each business.
The companies have often shared resources and personnel, signaling their close ties. Last year, SpaceX looked into creating a spacesuit for Tesla’s humanoid robot Optimus, a person familiar with the matter said. Tesla last week showed off its new Roadster, a vehicle featuring SpaceX rocket thrusters that it hopes to soon bring to market.
And in recent months, Musk has repositioned both companies by expanding beyond their core operations toward a shared mission centered on artificial intelligence.
The world’s richest man on Tuesday signaled his interest in tying up SpaceX and Tesla, marking what would be the biggest corporate merger of all time. Because he serves as chief executive of SpaceX and Tesla, Musk said committees of independent directors at both companies are evaluating a possible deal, adding that a transaction might not come to fruition.
The committees will likely evaluate, with lawyers and bankers, how each company would fare in a potential deal and how a deal might best be structured. They then present their conclusions to their respective boards, who typically vote on whether to proceed.
“It’s an odd Kabuki dance where two groups of people are talking and I can’t be in the conversation,” Musk told SpaceX investors on Tuesday in response to an analyst’s question about a potential deal.
For Musk, the merger supports his vision of a world full of autonomous cars, humanoid robots and weekly rocket launches, as well as the data centers and satellites required to keep the whole thing running.
Some investors and analysts said they expect a transaction would be structured as an all-stock deal, with SpaceX potentially paying a modest premium for Tesla shares.
SpaceX, which has a market value of about $2 trillion, said it is seeing sharp growth in revenue across its businesses, which include operating data centers, launching rockets and operating satellite networks such as the internet service Starlink. Tesla is valued at about $1.5 trillion and is expanding its operations beyond its automotive and energy business. Shares in both companies traded higher following the news Tuesday.
Musk’s substantial ownership stakes in both companies, along with voting control at SpaceX, has enabled him to set the deal in motion. Analysts and investors said the deal will probably face regulatory scrutiny internationally, though some see Musk’s close relationship with the Trump administration as an asset to getting approval.
Blurred lines
The companies haven’t said which directors are on the special committees evaluating a potential deal. Several SpaceX and Tesla board members have either personal or business ties to Musk. And like Musk, venture capitalist Ira Ehrenpreis sits on both boards.
In a filing this week, Tesla outlined millions of dollars in business agreements with SpaceX and its subsidiaries last year, including $143 million in car sales to SpaceX, $3.3 million in advertising that it bought on the social-media platform X and $430 million in revenue from the sale of Megapack batteries for SpaceX’s data centers.
The companies also split the cost of resources including the use of Musk’s SpaceX jet and the bill for his personal security, which he runs through a private company.
Employees at both companies routinely move between companies to work on special projects, and some executives have dual roles, including Charles Kuehmann, vice president of materials engineering at both SpaceX and Tesla, and Ashok Elluswamy, the vice president of AI software at Tesla who runs a joint venture with SpaceX called Digital Optimus.
Over the years, Musk has launched new startups within his empire, including brain-implant company Neuralink, underground-tunnel developer the Boring Company and xAI, the AI startup that merged with SpaceX in February.
It is that AI business that Musk thinks can serve a market worth tens of trillions of dollars, justifying the need for a merger.
The business case goes like this: Tesla is developing robotaxis and robots, which it calls “physical AI.” SpaceX is working on the back end of physical AI: the data-center capacity and internet connection required for those robotaxis and robots to operate continuously.
“I don’t see what the value of Tesla is if it’s not merged with SpaceX,” said investment adviser Ross Gerber, a former Tesla bull turned critic invested in both companies. “If they don’t merge, the brains of everything that runs Tesla is owned by another company.”
On top of it all, both companies face constraints on the supply chains they need to make this world a reality, particularly when it comes to chips. To address this, Musk earlier this year announced a joint venture between Tesla, SpaceX and Intel to design and manufacture chips in Texas. “The most epic chip-building exercise by far,” he has said.
Musk at the wheel
For Musk, a merger would also solve two problems: demands on his attention and his lack of control at Tesla.
Tesla for years was Musk’s only public company, a status that came with greater scrutiny. There, Musk reports to a public board, as well as individual investors who make up around 30% of Tesla’s voting power, according to FactSet.
The question of Musk’s attention became a particular focus for investors and the board in recent years after he acquired Twitter in 2022 and launched xAI in 2023, and again in 2025 as he spent time in Washington, D.C., running the Department of Government Efficiency in the early months of President Trump’s second term.
As Tesla’s car business suffered in 2025, Musk threatened to take his AI ambitions outside the company if he wasn’t granted 25% voting control. Last November, Tesla shareholders approved a new pay package for Musk, which created a path for him to vastly expand his stake.
As of Sept. 30, Musk owned a roughly 20% stake in Tesla, according to the company’s proxy filing.
The SpaceX IPO gave Musk a different path. When SpaceX went public in June, the deal’s structure enabled him to have more than 80% voting power at the company—so much that he can’t be fired and decisions can’t be made without his support.
If SpaceX acquires Tesla, he will likely stay in control.
Australian shares fell on Thursday as Wall Street weakness, rising oil and persistent rate concerns weighed on most of the market. The S&P/ASX 200 declined 0.72 per cent to 8,702. The All Ordinaries lost 0.66 per cent to finish at 8,897. Mining stocks were hit particularly hard, while real estate also dragged on the index. …
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Australia’s housing market rebounded sharply in 2025, with lower-value suburbs and resource regions driving growth as rate cuts, tight supply and renewed competition reshaped the year.
