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Armed groups lost access to dollars when a banking loophole was closed. They quickly pivoted to exploit a currency-exchange scheme using cards that at its peak involved $1.5 billion a month.

Iraq was a minor market for Visa and Mastercard a couple of years ago, generating just $50 million a month or less in cross-border transactions at the start of 2023. Then it exploded to around $1.5 billion in April that year, a 2900% increase almost overnight.

What changed? Iraqi militia groups figured out how to squeeze dollars on an industrial scale from Visa and Mastercard’s payment networks for themselves and for their allies in Iran, according to U.S. and Iraqi officials and documents reviewed by The Wall Street Journal.

The shift into cards came after the U.S. Treasury and the Federal Reserve Bank of New York in late 2022 shut down a gaping loophole being used for fraud—international wire transactions by Iraqi banks that lacked money-laundering safeguards. Flaws in that system, created by the U.S. during the occupation of Iraq, allowed Iran and the militia groups it supports to access billions of dollars over more than a decade.

After the U.S. finally closed that spigot, militias quickly found ways to profit from the card scheme.

The U.S. payment giants helped fuel the boom by signing up Iraqi partners to issue Mastercard and Visa-branded cash and debit cards, offering them financial incentives to boost transaction levels. In some cases, the Iraqi issuers had militia ties and inadequate fraud controls in a country known for rampant corruption, documents show.

Yet after being informed by Treasury of the armed groups’ involvement, the card companies took months to significantly rein in the transactions—which came down from their peak but still ranged from around $400 million to $1.1 billion a month until earlier this year. In an effort to get control of the card payments, the Central Bank of Iraq recently set a cap of $300 million a month, according to people familiar with the matter.

Iraq has both an official dollar exchange rate and a higher, unofficial rate. That means a person can buy prepaid cash and debit cards in Iraq, withdraw the money as dollars in other Middle East countries at Iraq’s official rate, and then return it to Iraq to convert it back into dinars at the unofficial rate. That generates gains that have reached as high as 21%.

The result has been a booming business for Iraq’s powerful militias, which arose with Iranian backing two decades or more ago and remain under U.S. sanctions because of attacks on American forces in Iraq and Syria. Mastercard and Visa have also profited, through charging 1% to 1.4% on cross-border transactions or more in some high-risk markets.

Iraqi cardholders engaging in the scheme are estimated to have made around $450 million in profit in 2023 alone, and the foreign card networks are estimated to have taken in nearly $120 million between them, a person familiar with the matter said. The revenues are estimated to have grown in 2024 since total transactions were up by around 60%.

The U.S. has waged a yearslong battle to block Iran and its proxies in Iraq from obtaining dollars, which violates sanctions levied over decades for its nuclear program, terrorism financing and other issues. Among others, Iran also supports Hamas in Gaza and Hezbollah in Lebanon, U.S.-designated terrorist groups.

The Iraqi militias acquired huge quantities of Mastercards and Visas loaded with funds, transported the cards to the United Arab Emirates and other neighboring countries and withdrew the money, Treasury officials informed the card companies last fall. The armed groups then transferred the cash back to Iraq, exchanged it for dinars and profited from the currency arbitrage, Treasury said.

The graft likely financed their operations, paid for weapons or just lined their pockets.

Other permutations of the currency-exchange scheme also take place, all making use of the difference between Iraq’s official and unofficial dollar-exchange rate.

In recent days, Treasury formally asked the Iraqi central bank to block the more than 200,000 cards used by militia members due to fraud concerns.

The Trump administration, which has been holding high-level nuclear talks with Tehran since April, has taken new steps to cut off Iran’s access to hard currency, including by targeting ships it uses to sell oil in violation of sanctions and by restricting its access to dollars from neighboring Iraq.

Iraq’s most potent Iran-backed militias, including the Badr Brigade, Kataib Hezbollah and Asaib Ahl al-Haq, have the clout within Iraq’s government and financial sectors to help Tehran circumvent sanctions, forming what Treasury Secretary Scott Bessent in April called a “clandestine network of financial facilitators.”

“In line with administration priorities and to preserve the strength of the U.S. dollar, Treasury will continue to be vigilant about threats to the U.S. financial system, including by Iran-aligned actors,” a department spokeswoman said about its efforts to rein in Iraqi cash- and debit-card activity.

Funeral procession for Kataib Hezbollah fighters killed in a U.S. airstrike in Iraq.

Members from the Popular Mobilization Forces at the funeral of fighters from Kataib Hezbollah who were killed in a U.S. airstrike last year. Photo: Hadi Mizban/AP

U.S. and Iraqi officials said warnings to Visa and Mastercard about the militias’ role in the soaring cash- and debit-card payments went mostly unheeded for months.

Federal Reserve Bank of New York and Treasury officials began asking Visa and Mastercard to explain the rising transactions in May 2023, the U.S. and Iraqi officials said. They held regular meetings about the Iraqi market that also included Iraqi central bank officials in 2024 and early this year. The card companies began taking significant action in March.

The Iraqi card issuers that partnered with Visa and Mastercard weren’t under sanctions, and there is no public allegation that Visa or Mastercard violated any sanctions.

The companies, which have a roughly equal split of the Iraqi market, said they acted promptly to limit transactions after finding evidence of fraud.

“Ongoing government engagement is built into our programs so that we can quickly look into claims, identify the situation and take action as appropriate,” Mastercard spokesman Seth Eisen said. “That’s exactly what we have done with the U.S. government on this matter from a very early stage.” He said the Iraqi government is working to digitize its economy, which results in more electronic payment transactions.

Fletcher Cook, a Visa spokesman, said: “Central to our operations is a commitment to ensuring that transactions on our network do not violate the law…When we identify or are alerted to any suspicious or illegal activity, we take action.”

Lined up at ATMs

To keep money flowing through the economy after the international wire transactions crackdown, the Central Bank of Iraq in early 2023 permitted payments with cash and debit cards outside Iraq to be made at the official conversion rate—currently 1,320 Iraqi dinars to the dollar—a cheaper price for dollars than the rate available in Iraq’s currency markets. That supercharged the use of cards for currency arbitrage.

Militia couriers smuggled the cards into U.A.E., Turkey and Jordan. There they withdrew cash from ATMs—witnesses described Iraqis lined up day and night at ATMs in Dubai with stacks of prepaid cash cards, inserting one after another.

They moved the money back to Iraq, either through the informal Middle East money-transfer process known as hawalla or by electronic transfer between bank accounts. The funds were then exchanged for dinars in currency markets at the higher unofficial rate—close to 1,600 dinars to the dollar at its high point in 2023—resulting in a profit. The exchange-rate spread has fallen in recent months, to about 1,400 dinars to the dollar.

Regulators in Iraq and U.A.E. limited daily withdrawals and cracked down on the card smuggling. In one case, more than two dozen Iraqis carrying a total of around 1,200 cash cards loaded with more than $5 million were arrested at Iraqi airports and border crossings. An Iraqi traveler was arrested at the airport in the city of Najaf with 300 bank cards hidden in cigarette packs in his luggage. In another, multiple Iranians and Iraqis were caught by border guards while attempting to smuggle Mastercards to Iran.

The militias adjusted, and began persuading merchants in the other countries with access to Visa and Mastercard networks to run fake purchase transactions in return for a kickback.

In an example described by bankers familiar with the scheme, a luxury-goods store in the U.A.E. charges a Visa or Mastercard cash or debit card $5,000, even though no merchandise changes hands. In return for a 5% payment, the shop gives the cardholder the $5,000 in cash or the equivalent in U.A.E.’s currency, the dirham, which is pegged to the dollar. The card company debits the card at the official Iraqi dollar rate. The funds then move back to Iraq for the market exchange.

The militias often use the funds to repeat the process over and over, profiting at every cycle.

Eventually, the scammers acquired hand-held “point of sale” machines, commonly used by restaurants and retail merchants, for themselves, the Iraqi and U.S. officials said. At so-called POS farms, they processed fake transactions on dozens of the devices, using virtual private networks to disguise their locations, the officials said.

Iraqi officials said they didn’t have adequate controls in place to prevent what they called rampant fraud. U.S. authorities also didn’t immediately see the flaws in the system, in part because card settlements are much less scrutinized than regular wire transfers, they said. Iraq was especially vulnerable to the card schemes because of loose controls on card issuers and an economy that remains largely cash based.

Authorities have had success blunting the exchange-rate ploy in some areas.

Officials saw a similar spike in funds moving out of Iraq through fund-transfer companies Western Union and MoneyGram. Transfers using those companies exceeded $1 billion in March 2023, soon after the crackdown on bank-to-bank wire transfers, and rose to $1.7 billion in June. When Western Union announced its second-quarter financial results in July 2023, it raised its full-year revenue forecast “primarily to business performance in Iraq.”

The company also disclosed it was having “regular discussions with policymakers in both the U.S. and Iraq about the elevated remittance volumes flowing through its network in Iraq.”

Alarmed U.S. and Iraqi regulators imposed new limits on monthly transfers for the two U.S. money-transfer companies. At authorities’ urging, Western Union and MoneyGram closed accounts at numerous Iraqi banks. The moves drove down monthly outflows from Iraq to $110 million by October 2024.

Western Union declined to comment, and MoneyGram didn’t respond to requests for comment.

After Baghdad’s First Iraqi Bank began offering an instant money transfer service known as Visa Direct in early 2024, it prompted a torrent of cash transactions to accounts linked to other Visa cards. Over two months, the bank’s Visa cardholders sent $1.2 billion to Dubai, Turkey and other places, according to a person familiar with the matter. One cardholder repeatedly transferred more than $5 million a day to 11 accounts in Indonesia, the person said.

Treasury and the Fed raised concerns about the huge transfers, and Visa halted the bank’s use of the service after 10 weeks. Visa and First Iraqi Bank didn’t respond to questions about Visa Direct.

Clear picture of fraud

But stopping individual products did little to dent the overall fraud, and the card business grew. The number of Iraqi issuers licensed to offer prepaid or debit cards rose from five to 17 from 2017 to 2024, a person familiar with the matter said.

U.S. officials were especially concerned about one of Iraq’s most widely held debit cards, known as Qi Card, a partner with both Mastercard and Visa that covers around half the market. Transactions using the card went up from around $10 million a month in early 2023 to more than $500 million a month by the beginning of this year.

Under a contract with a state-owned Iraqi bank, the card has been used to distribute salaries to millions of pensioners and government employees, including militias. The Popular Mobilization Forces, an umbrella organization of militia groups, was put on the government payroll a decade ago when Islamic State fighters swept across large parts of northern and western Iraq in 2014. After its U.S.-trained army largely collapsed, the Baghdad government turned to private armed groups, mostly Iraqi Shiites, in an emergency move to fight along U.S. forces.

As part of the arbitrage scheme, militia commanders took possession of rank and file members’ cards, and also padded the rolls with nonexistent or no-show troops to obtain more cards, an Iraqi banker said.

Even though Islamic State was largely defeated in 2019, the Popular Mobilization Forces have grown steadily more powerful within government and financial sectors. More than 200,000 militia members were receiving salaries on Qi Card, a foothold that U.S. and Iraqi officials said the militias used to become major players in the illicit card activity. That spurred a request in recent days from Treasury to the Iraqi central bank to block Qi cards issued to militias.

Qi Card’s Iraqi parent company, International Smart Card, said it “no longer provides any services to the PMF.”

Bahaa Abdul Hadi, the company’s 55-year-old founder, said it has taken other steps to reassure Treasury and the Fed that no one who receives a Qi Card is under U.S. sanctions and that militia members hadn’t received Qi Cards that can be used outside Iraq. “The only service provided to PMF cardholders was the transfer of outbound salaries from their employer,” the company said.

U.S. and Iraqi officials said funds paid to the militias could easily be moved to other cards that do work outside of Iraq.

Data tracking Iraqi cross-border card use overall painted a clear picture of fraud, the officials said.

One out of every five transactions by foreign cardholders in U.A.E. in 2024 involved an Iraqi debit or cash card, even though only one out of every 250 travelers to the country was from Iraq, according to a person familiar with the matter.

Most of the Iraqi payments involved little-known businesses in foreign trade zones or high-end jewelers, instead of the hotels, restaurants and tourist attractions where foreigners who travel to Dubai and other U.A.E. cities typically spend money. More alarming was that vendors did almost all of their business only with Iraqi-issued cards, month after month.

Visa, Mastercard action

When a Mastercard Global Compliance Team conducted a virtual review in August 2023 of Yana Banking Services, a card provider based in Erbil, it found no evidence that customers were being screened to ensure they weren’t under U.S. sanctions, a requirement under its licensing agreement with Mastercard.

The review also found “ineffective suspicious activity monitoring and reporting” aimed at preventing fraud, as well as ineffective anti-money-laundering safeguards. “No customer risk rating is performed, and no risk ratings were reflected on eight cardholder and three merchant files tested during the review process,” according to Mastercard’s findings, which were reviewed by the Journal.

Yana was banned from issuing new Mastercard-branded cards until it corrected what the review described as “high priority” violations. The suspension was later lifted after the problems were addressed, according to a person familiar with the matter.

“The goal is to ensure they avoid further violations of Mastercard standards or regulatory requirements,” said Eisen, the Mastercard spokesman. “We reserve the right to revisit any allegation to ensure this compliance.”

Yana didn’t respond to requests for comment.

The enforcement accelerated this spring. In March, Mastercard blocked more than 100,000 Iraqi-issued cards and removed 4,000 merchants in U.A.E. from its payment network suspected of involvement in fraudulent Iraqi transactions. Half of the cards were issued by International Smart Card, U.S. and Iraqi officials said.

Information about Qi Card and International Smart Card that Mastercard received from government agencies “was compiled with existing information and actioned accordingly,” Eisen said.

In April, Visa sent alerts about potential fraud for 70,000 Iraqi cards and barred around 5,000 U.A.E. vendors, temporarily blocking their use.

Some of the cards were later reactivated after Mastercard and Visa concluded their charges were legitimate, according to a person familiar with the matter.

The companies and authorities have started blocking some of the 17 Iraqi card issuers, cutting the total by about half.

Along with the $300 million monthly cap on the country’s total cross-border transactions, the Central Bank of Iraq imposed a monthly $5,000 cap per cardholder. It also hired K2, a New York financial crimes advisory firm, to monitor card transactions and required every card issuer to shift to an Iraqi bank with a correspondent U.S. bank, officials said.

Treasury has taken sweeping action on its own, blacklisting three Iraqi card issuers suspected of ties to the militias. All three were Visa or Mastercard partners.

One of them, Al Saqi Electronic Payment Company, is affiliated with the Holy Shrine of Al Abbas, a golden-domed Shia mosque in Karbala, Iraq. Every year millions of pilgrims, many from Iran, visit the shrine. Al Saqi didn’t respond to requests for comment.

Visa has stopped processing Al Saqi cards on its payment network. The Iraqi company’s website, though, still features pictures of Visa cards, promising customers “all the advantages offered by Visa, including ease of use, global acceptance, and high-security standards.”

Taser Boss Tops Ranking of Highest-Paid CEOs, With $165 Million. Here’s the List.

Stock award propels Rick Smith past Apple’s Tim Cook and Blackstone’s Schwarzman to the top of WSJ’s annual ranking

Key Points

Rick Smith, who co-founded and runs the maker of Taser stun guns, tops this year’s list of the highest-paid chief executives, with pay of $165 million.

The Axon Enterprise CEO’s AXON 2.75%increase; green up pointing triangle pay outstripped that of the leaders of much larger companies, including General Electric’s Larry Culp, Blackstone’s Steve Schwarzman and Apple’s AAPL 0.45%increase; green up pointing triangle Tim Cook. Smith was the only S&P 500 CEO to receive a pay package above $100 million in 2024.

Overall, CEO pay set another record. Half the chief executives in The Wall Street Journal’s annual analysis made $17.1 million or more last year, up from $15.8 million for the same executives a year earlier, the analysis of pay data from MyLogIQ found.

JPMorgan boss Jamie Dimon came in at No. 23 with $37.7 million, while No. 63 Mark Zuckerberg got $27 million from Meta last year, mostly for security services. Tesla’s Elon Musk, whose last pay package has become a legal battle, came in last at $0.

Like most CEOs, much of Smith’s compensation came from a stock award, not salary. His May 2024 award is tied to a series of market and operating targets over several years.

It isn’t the first big payday for Smith, who has run the company since 1993. In 2019, Axon reported pay of $246 million for him based on a similar stock award, when the company wasn’t in the S&P 500. Smith jointly ran the company with his brother Thomas for two decades, securing rights for the technology and developing the Taser into a common tool for police forces.

Smith said his 2024 award was granted under a new program open to all Axon employees, allowing them to convert some or all of their pay over seven years into restricted shares that could triple in number or be cut to zero depending how the company performs. It was narrowly approved by shareholders last year.

“One of the things I love about the design is I can make zero—I feel better about making a lot if I can also make zero,” Smith said in an interview. “For me it creates that startup kind of vibe.”

Axon’s share price has gained about 160% over the past year, pushing its market capitalization above $50 billion and helping to raise the value of the shares underlying Smith’s award to around $500 million at recent prices. Two of seven performance targets had been met by March, company filings said.

A handful of executives outside the S&P 500 also made more than $100 million last year, including Peter Gassner of cloud-computing company Veeva Systems, at $172.4 million, and Shopify’s Tobias Lütke, at $150 million. It marks the fewest CEOs making nine figures since 2016.

The Journal’s analysis used data from MyLogIQ, a provider of public-company data, and included CEOs on the job for at least a year at more than 400 S&P 500 companies reporting pay through mid-May for fiscal years ending after June 30, 2024.

Beijing says US defence secretary is trying to instigate confrontation and stir up the region

US defence secretary Pete Hegseth warned that a Chinese military attack on Taiwan “could be imminent” as he called on America’s allies in the Indo-Pacific to boost defence spending as a further deterrence to Beijing.

Speaking at the IISS Shangri-La Dialogue defence forum in Singapore on Saturday, Hegseth said China wanted to become a hegemonic power in Asia and was acting in a manner that should be an urgent “wake-up call”.

“Any attempt by Communist China to conquer Taiwan would result in devastating consequences for the Indo-Pacific and the world,” he said.

“There is no reason to sugarcoat it. The threat China poses is real, and it could be imminent. We hope not, but it certainly could be.”

US intelligence officials and military officers have said President Xi Jinping has told the Chinese military to develop the capability to invade Taiwan by 2027. But while they are increasingly worried about China’s rapid military rise, most officials stressed an attack was not imminent.

In his second trip to Asia as defence secretary, Hegseth said US partners in the region should follow the “newfound example” of Europe in pledging to boost defence spending, saying “time is of the essence”.

“It doesn’t make sense for countries in Europe to do that while key allies in Asia spend less on defence in the face of an even more formidable threat [from China], not to mention North Korea.”

Hegseth said no one should doubt the US commitment to its allies in the region and that the Indo-Pacific remained the “priority theatre” for the US,

While he accused Joe Biden of weakening the US, many of the policies he outlined appeared to be a continuation of measures introduced by the former president. Ely Ratner, the top Pentagon Asia official in the Biden administration, said apart from the rhetoric there was “near total continuity”.

Hegseth said the US did “not seek conflict” with China but would “not let our allies and partners be subordinated”. He noted that China was using its cyber capabilities to attack critical infrastructure in the US and beyond and was harassing its neighbours, including Taiwan, in the South China Sea.

“Xi has ordered his military to be ready to invade Taiwan by 2027,” he added. “The [People’s Liberation Army] is building the military needed to do it, training for it every day and rehearsing for the real deal.”

Hegseth said many countries were “tempted by the idea of seeking both economic co-operation with China and defence co-operation with the US”. But he warned that economic dependence on China “complicates our decision space during times of tension or conflict”.

When asked what role European militaries should play in the Indo-Pacific, Hegseth said a “big one”, before adding that Washington would prefer they focus their efforts on the Euro-Atlantic region.

He said there was “something to be said for the fact that China . . . does not appreciate the presence of other countries [in the region] on occasion”, and it could be “useful” if Beijing factored the presence of European militaries into its calculus.

But he stressed: “We would much prefer that the overwhelming balance of European investment be on that continent.”

Kaja Kallas, the top EU foreign policy official, reminded the forum that former Japanese prime minister Fumio Kishida had stressed that the Euro-Atlantic and Indo-Pacific theatres were connected and that countries in one region had a security stake in the other.

Kallas told the FT she had privately stressed to Hegseth that the two regions were “very much interrelated” from a security perspective.

“We are doing more for our own defence, but we need to be there for our partners [in Asia],” said Kallas, adding that EU interests in Asia ranged from maritime security to cyber security.

Kallas noted the economies of the EU, US and other countries that have concerns about China — Australia, Canada, India, Japan, South Korea, Mexico and New Zealand — totalled $60tn in scale, compared to $18tn for China. “That also becomes a military deterrent,” she said.

Kallas said the economic argument “resonated” with Hegseth. But she added that the trade wars launched by President Donald Trump were undermining efforts to counter China.

“They think that having these trade wars with everybody is making them stronger. I actually think that it’s making all the alliances and all the allies . . . weaker when you want to confront the economic power that China has,” Kallas said.

Kallas said she had asked Hegseth if the US was worried that its rhetoric — particularly over Taiwan — had the potential to spark a miscalculation in Beijing. He said the US did not see it that way and stressed that Washington was not seeking conflict with China, she said.

Zack Cooper, an Asia defence expert at the American Enterprise Institute think-tank, said Hegseth “hedged” his response on the European role in Asia.

“He seemed to suggest that a European presence in Asia could be helpful for deterrence of China, but also made clear that Europe should still prioritise operations in its own region,” Cooper said.

China hit back against Hegseth later on Saturday, accusing the US of trying to “provoke, split, instigate confrontation and stir up the region”.

Rear Admiral Hu Gangfeng, vice-president of China’s National Defense University, called his comments “fabrications reversing black and white” and said he was “a thief crying ‘catch the thief’”.

Anglo American’s $11bn platinum spin-off makes London market debut

Demerger marks significant milestone for corporate overhaul and refocus on copper and iron ore

The $11bn platinum business being spun out of Anglo American will debut a secondary listing in London on Monday, in a significant milestone for the restructuring of the FTSE 100 mining company.

Valterra, formerly known as Anglo American Platinum, is the world’s most valuable platinum producer and has benefited from a recent upturn in prices for the metal used in catalytic converters.

The spin-off marks the biggest step yet by Anglo American as it implements an overhaul developed last year while it fought off a hostile £39bn offer by rival miner BHP.

The slimmed down Anglo American could be a more attractive takeover target once the demerger is complete, according to analysts and bankers.

The company is also disposing of its nickel, coal and diamonds businesses to focus on copper and iron ore.

Valterra has its primary listing in Johannesburg. Its London-listed shares will be distributed to Anglo American shareholders — differing from a traditional initial public offering in which shares are priced at an attractive level to engineer a first day rise.

Because Anglo American is a member of the FTSE 100 and Valterra is not, the passive index tracker funds that receive Valterra shares are expected to sell them, potentially leading to a rocky start.

“The risk of volatility is high, given the quantum of trading that has to be done in the first couple of days,” said Ben Davis, analyst at RBC. He calculated that about 8 per cent of Valterra’s stock, or 21mn shares, would be distributed to passive index funds that are likely to sell their holdings.

Anglo American has taken steps to minimise disruption during the transaction, including by reducing its Valterra holding from 78.6 per cent to 66.7 per cent over the past year. It will retain just under 20 per cent of the platinum company.

The short-term outlook for platinum prices has improved because of the slower adoption of electric vehicles and the sustained use of internal combustion engines that often use platinum and palladium in their catalytic converters.

Platinum prices touched a two-year high last week, after rising 20 per cent since the start of the year.

Valterra chief executive Craig Miller said this month that the new company would be “more agile and more decisive” as a standalone business.

“Instead of competing for capital with other commodities in a diversified company, we get to invest that capital back into the quality assets that we have,” he said.

Anglo American is reorganising its shares with an approximately 12 per cent consolidation designed to keep the share price at roughly the same level as before the split.

‘Kei’ car launch next year by China’s leading electric vehicle maker seen as ‘black ship’ moment for country

China’s BYD is planning an assault on one of the quirkiest parts of Japan’s car market, highlighting its bold global ambitions by challenging the likes of Toyota in its own back yard.

The leading electric vehicle maker, whose cars overtook Tesla in European sales last month, plans to release a low-cost battery-powered kei car in Japan next year. The unique class of boxy minicars was worth $18bn in sales there last year and makes up about 40 per cent of the world’s fourth-largest car market.

BYD aims to loosen the decades-long dominance of the segment by Japanese carmakers including Toyota, Honda, and Nissan.

Atsuki Tofukuji, president of BYD Auto Japan, said it saw an opening for low-cost miniature EVs of a similar size to “Mr Bean’s Austin Mini Cooper”, as high taxes push up conventional fuel prices and petrol stations rapidly disappear in depopulating rural Japan.

“Kei cars fit the Japanese way of life extremely well,” he said in an interview with the Financial Times. “If customers properly understand the economic rationale, they are sufficiently willing to buy kei cars that aren’t made by the existing major brands.”

Chinese carmakers have been snatching sales away from Japanese carmakers in their traditional stronghold of south-east Asia, but the planned kei car is among BYD’s first to be designed for an overseas market without being sold first in China. Key details, such as driving range, price and the vehicle’s appearance, have yet to be unveiled.

Local bloggers have compared the latest challenge on home soil to the arrival of Commodore Matthew Perry’s black ships in the 1850s, which made clear the power and technology imbalance between Japan and the west.

However, analysts cautioned BYD would face an uphill battle to attract Japanese customers, who are fiercely loyal to homegrown producers, distrustful of Chinese brands and demand top-notch service from dealers. EV sales in Japan have also been abysmal at less than 60,000 units or just over 1 per cent of the market in 2024, according to official data.

The vehicle launch, scheduled for the second half of 2026, is set to come at a crucial time for Japan’s car sector. Profits could be crushed by US President Donald Trump’s tariffs and Washington is negotiating to reduce “non-tariff” barriers for foreign groups in Japan’s car market.

Foreign brands make up less than 6 per cent of the Japanese car market, with Tofukuji echoing Trump’s gripes about Japan’s onerous vehicle testing regime.

BYD entered the Japanese market in 2013 and offers three models; however, sales have been sluggish, with only 2,221 units sold in the year to March.

Executives from Shenzhen visited Japan two years ago and realised minicars were more popular than they had thought, prompting the push to widen its product offerings.

The carmaker plans to raise its number of stores in Japan to 100 by the end of the year, but many of the current 61 outlets face “tough” operating conditions, Tofukuji said. With the new EV minicar, he is confident of reaching a break-even point of 150 units per store — which would equate to 15,000 annual sales in total.

BYD’s new car will be cheaper than the compact Dolphin that sells for ¥2.9mn ($20,700). Nissan’s Sakura EV minicar, which has a driving range of 180 kilometres on a single charge, sells for ¥2.6mn.

Japan may not be the only target for BYD’s mini EV, considering how the masters of “supercompact” cars are themselves eyeing potential markets in India, Europe and other regions.

“Kei EVs are likely to gain more opportunities to thrive globally,” said Toshihiro Suzuki, chief executive of Suzuki, a pioneer of the cheap minicar, when asked about the BYD threat.

While suited to Japan’s tight roads and parking spaces, the kei cars’ popularity has been driven by the tax and insurance breaks given, if they meet certain conditions. They include not exceeding maximum dimensions, an engine smaller than 660cc, and a power output of less than 47 kilowatts.

Developing a specialised engine for the Japanese market has historically been too onerous for many foreign car manufacturers; however, Tofukuji expects to use cheap, readily available batteries and motors in its minicar.

“One clear advantage unique to EVs is the ease with which their powertrains can be designed and manufactured,” he said.

Is the ECB certain to cut interest rates on Thursday?

Market Questions is the FT’s guide to the week ahead

When the 26 members of the European Central Bank’s governing council meet on June 5 in Frankfurt, anything but another quarter-point cut in its key deposit rate would be a huge surprise.

Financial markets are pricing in a 97.5 per cent probability of such a move, according to LSEG data, which would lower borrowing costs to 2 per cent. This is the lowest in more than two years and half the level in June 2024, when the ECB started to ease monetary conditions.

That followed an unprecedented 15-month period of rapid rises to get inflation back under control. In the wake of supply chain disruptions and Russia’s full-scale invasion of Ukraine, inflation had shot up to close to 11 per cent in late 2022, more than five times above the ECB’s medium-term inflation target of 2 per cent.

Preliminary inflation data for May, which will be released on Tuesday, is expected to show annual inflation has hit the 2 per cent target, according to a Reuters poll. A stronger euro versus the dollar combined with a fall in energy prices and a potential rise of imports from China in the wake of the global trade war could all “lead to lower inflation in the euro area”, said ECB chief economist Philip Lane in a recent interview with the Frankfurter Allgemeine Zeitung.

New forecasts on GDP and inflation, which the ECB will also publish on Thursday, could indicate problems ahead. Still, ECB president Christine Lagarde is unlikely to give any meaningful guidance about the future rate path. Frankfurt’s rate setters have maintained a wait-and-see attitude, stressing that they face an extreme level of uncertainty and prefer not to commit to any path for future rate decisions. Olaf Storbeck

How is the US labour market faring during the trade war?

The strength of the American job market will be scrutinised on Friday when the Bureau of Labor Statistics releases its latest batch of non-farm payroll data.

Economists polled by Reuters expect to see the US adding 130,000 jobs in May, down from 177,000 in April and 272,000 in May 2024.

The US is adding fewer jobs compared with this time last year as Donald Trump ally Elon Musk has led a push to downsize the federal government. Outside of Washington, many companies have slowed or frozen hiring for new roles as President Donald Trump’s trade war has put markets on a rollercoaster.

Next week’s data follows a rise in jobless claims in a late May report that suggested “some loosening in labour market conditions”, said Nancy Vanden Houten, lead US economist at Oxford Economics. She also expects the waves of federal lay-offs that started in February to accelerate in the coming months.

“Continued claims continue to creep higher, confirming that workers who lose their jobs are finding it tougher to find new employment,” Vanden Houten said.

Federal Reserve staff had forecast in the latest Federal Open Market Committee minutes that US jobless numbers would rise and remain higher than the natural rate of unemployment, given the heightened possibility of an economic recession, Goldman Sachs analysts noted. Will Schmitt

Will the BoC cut rates this Wednesday?

The Bank of Canada’s interest rate decision on June 4 should shed more light on the effect Trump’s trade war has had on the bank’s expectations for economic growth.

In April, in the midst of high market volatility, the BoC kept overnight interest rates unchanged at a target of 2.75 per cent. Given the trade tensions with the US, Andrew Hencic, director of TD Economics, said two cuts of 25 basis points each could help support Canada’s economy without risking more price inflation.

The current rate could come down to 2.25 per cent by the end of the year, he said. “We think that enough slack has accumulated in the economy that there’s space for the central bank to cut its lending rate a little bit more without too much inflationary pressure coming through,” Hencic added.

However, hopes for a rate cut at the BoC’s June meeting were hit by stronger than expected April consumer price index data in mid-May. “There was a dramatic shift in market pricing — from a 70 per cent chance of a cut to 30 per cent — after the last CPI report,” said Jason Daw, the head of interest rate strategy at RBC in Toronto.

Markets are now pricing in a 22 per cent chance of a cut, according to LSEG data.

Tariffs will have a trivial impact on Canadian inflation in Daw’s view. But given that CPI has recently been above expectations, the central bank will struggle to defend rate reductions too soon.

While the labour market has been “squishy for two months . . . the bar to restarting the cutting cycle is high.” The direction of economic growth “should be down but the magnitude is tricky”, said Daw.

Influential economist Stanley Fischer dies

Former policymaker at the Federal Reserve, IMF and World Bank also taught generations of students

Stanley Fischer, a former top policymaker at the US Federal Reserve and the Bank of Israel whose thinking was highly influential among generations of economists, has died at the age of 81.

A former vice-chair of the Fed, Fischer also served at the IMF, where as first deputy managing director he worked on the response to the Asian and Russian crises of the late 1990s. He also served as chief economist at the World Bank. 

Fischer’s death was announced on Sunday by the Bank of Israel, where he served as governor from 2005 to 2013. The country’s president Isaac Herzog paid tribute to him as “a world-class professional, a man of integrity, with a heart of gold”. 

While he attained some of the most senior positions in global economics, Fischer’s career was no less significant because of his academic and teaching work, including at Massachusetts Institute of Technology. 

Former European Central Bank president Mario Draghi and former Fed chair Ben Bernanke were among the students whose PhD dissertations he helped supervise. 

“The human dimension of Stan’s work was as impressive and impactful as his brilliant economic analysis and his remarkable communication skills,” said Mohamed El-Erian, president of Queens’ College Cambridge and chief economic adviser at Allianz. 

“This quality was consistently evident — whether in his approach to individual country reform cases, his pursuit of a comprehensive, durable, and just peace in the Middle East or his contributions to the functioning of the international economic order.”

Born in the 1940s in Zambia when it was the UK protectorate of Northern Rhodesia, Fischer was the son of Philip, a Jewish immigrant from Latvia who owned a country store in the town of Mazabuka, and Ann, who was born in Cape Town and was the daughter of Lithuanian immigrants.

Fischer later recalled growing up surrounded by farmers with the influence of colonialism prominent in his upbringing. “I am a product of the British empire, there is no question about it,” he told the Financial Times in 2017. His family later moved to Southern Rhodesia, where as a teenager he got to know his future wife Rhoda, who died in 2020.

Fischer studied economics at the London School of Economics, launching an academic career that would also take him to MIT, where he received a PhD in economics in 1969 and ultimately a professorship. 

His academic work in the 1970s proved to be groundbreaking as he built up the idea that activist central banks could stimulate the economy, becoming a leading figure in New Keynsian economics. His published work included the influential book Macroeconomics, co-authored with Rudi Dornbush and Richard Startz. 

He joined the World Bank in 1988 before becoming the number two official in the IMF in 1994, serving under Michel Camdessus. His period at the Fund proved to be a turbulent one with the eruption of the emerging market crises of the 1990s. 

He later moved to Citigroup, where he worked as vice-chair. A dual US-Israeli citizen, Fischer joined the Bank of Israel in 2005, where he helped steer the country through the turmoil of the global financial crisis that erupted later in the decade. 

He joined the Fed in 2014, serving on the board under Janet Yellen. His period at the Fed was marked by internal disagreements over interest rates, as Fischer advocated for a more hawkish approach to policy than Yellen.

After the first Trump administration took power in 2017 he was vocal about the risks of financial regulation being thrown into reverse, something he described as “extremely dangerous and extremely short-sighted”.

“I had a picture of the world economy in which the United States was an anchor, not a source of volatility,” Fischer said at the time.

Fischer resigned from his position at the Fed in late 2017, more than six months before the post was due to end, saying in a letter to President Donald Trump that his departure was for personal reasons. 

At the time Lawrence Summers, former US Treasury Secretary, wrote in the FT that “through his teaching, writing, advising and leading Stan has had as much influence on global money as anyone in the last generation”. 

Former IMF chief economist Olivier Blanchard paid tribute to Fischer on social media on Sunday, saying: “He was an outstanding economist, an outstanding policymaker, but even more importantly, a great human being.”

Pharma group estimates Camizestrant could be worth up to $5bn of sales in its peak year

AstraZeneca has unveiled positive trial results for a breast cancer drug that can stop mutating tumours before they start to grow, hoping it will be one of a portfolio of medicines that will propel it to become the world leader in oncology.

The late stage trial of Camizestrant for “advanced” breast cancer, which was presented at the annual Asco cancer conference, cut the risk of a tumour progressing, or a patient dying, by 56 per cent in aggregate. AstraZeneca estimates it could be worth up to $5bn of sales in its peak year. 

David Fredrickson, executive vice-president of oncology at AstraZeneca, said that Camizestrant and two other drugs presented at the conference could replace existing treatments for up to 75,000 patients between them.

AstraZeneca’s ambition was to become the “number one cancer company globally” by sales — it is currently number three in some regions — and to “eliminate cancer as a cause of death” Fredrickson said. The pharma group already has nine cancer medicines approved for 37 different types and stages of cancer.

The Camizestrant study used an innovative blood test, often called a liquid biopsy, to detect tumour DNA and identify patients at high risk of mutated tumour before it could be picked up on a scan. The test enabled patients to be treated with the new drug at an earlier stage. 

“We’re moving away from a one-size-fits-all era into a place where we can outsmart cancer’s resistant mechanisms before they actually take hold,” Fredrickson said. 

The trial treated a subset of breast cancer patients with particular receptors on their tumours. Camizestrant prevents oestrogen from attaching to cancer cells and destroys the cells’ receptors, making it harder for it to resist treatment. 

The results showed that disease progression for patients taking the new drug in combination with an existing treatment was delayed by an average of 16 months, compared with 9.2 months in the group given just the existing treatment.

The trial also found that treatment with the new drug led to better quality of life for patients for significantly longer than the current standard. It has not yet published full data on how long the drug helps patients survive compared with existing treatments.

The study was led by researchers at the Institute of Cancer Research in London, the Royal Marsden NHS Foundation Trust in London and the Institut Curie in Paris.

Professor Kristian Helin, chief executive of the Institute of Cancer Research, said the results were “more than a clinical milestone — they represent a transformational shift in how we approach precision medicine”.