Explainer

Donald Trump is expected to meet Colombian President Gustavo Petro on Tuesday after a year of exchanging insults and threats over the United States president’s aggressive foreign policies in Latin America, and Bogota’s war on drugs.

Petro’s visit to the White House in Washington, DC, on February 3 comes just one month after the US abduction of Venezuela’s President Nicolas Maduro in a lightning armed assault on Caracas.

The Colombian leader will likely be seeking to address diplomatic tensions with the US, which have been in disarray since Trump began his second term last year.

The 65-year-old left-wing Petro has been a vocal critic of Trump’s foreign policies and recent military operations in the Caribbean Sea as well as of Israel’s war on Gaza – a thorny topic for the US president.

Last month, tempers rose again when Trump threatened to target Colombia militarily for allegedly flooding the US with illegal drugs.

Have relations between the two always been frosty?

No. After Colombia gained independence from Spain in 1819, the US was one of the first countries to recognise Colombia’s independence in 1822. It established a diplomatic mission there in 1823.

A year later, the two nations signed a string of treaties focusing on peace, navigation and commerce, according to US government archives.

Since then, the two nations have continued to cooperate on security and economic matters. But these efforts have been interrupted at times, such as during the Cold War, by geopolitics and in relation to Colombia’s war on the drug trade.

Here is a timeline of key issues and events.

Business interests threatened

In 1928, US businesses were operating in Colombia. But their interests were threatened when Colombian employees of America’s United Fruit Company protested, demanding better working conditions. Political parties in Colombia had also begun questioning Washington’s expanding role in Latin America following these protests.

According to the Council on Foreign Relations (CFR), this was also the period of the “Banana Wars” when Washington was busy toppling regimes in South America to shore up its business interests in the region.

A string of US military interventions took place from 1898 to 1934 as Washington sought to expand its economic interests in the region until President Franklin D Roosevelt introduced the “Good Neighbor Policy”, pledging not to invade or occupy Latin American countries or interfere in their internal affairs.

Emergence of FARC

Security relations between the US and Colombia deepened during the second world war. In 1943, Colombia offered its territory for US air and naval bases while Washington provided training for Colombian soldiers.

According to the CFR, the US boosted military support for Colombia during its deadly conflict with armed rebel groups, which lasted from 1948 until the mid-1950s and killed more than 200,000 people. During this conflict, many independent armed groups emerged in the countryside, and the US implemented a strategy known as Plan Lazo to improve civilian defence networks.

In response, the Revolutionary Armed Forces of Colombia (FARC) was formed by rebel leaders and engaged in widespread violence and kidnappings, according to the CFR.

FARC claimed to be inspired by communist values and, in the late 1940s, controlled about 40 percent of the country, according to the CFR. Washington labelled it as a “terrorist” organisation and focused efforts towards destabilising the group.

FARC eventually signed a peace agreement with the Colombian government in 2016. In 2021, the group was delisted from Washington’s foreign terrorist organisations’ list.

War on drugs

As FARC was rising in Colombia, the drug trade was also gathering momentum. Groups such as the Medellin Cartel and Cali Cartel emerged in the country, and trafficked marijuana and cocaine to the US on a regular basis.

Faced with a rising number of drug-related deaths, the US government spent more than $10bn on counter-narcotics and security efforts to aid Colombia’s government between 1999 and 2018, according to a US Government Accountability Office report.

Former US presidents, including Bill Clinton and George W Bush, also launched counter-narcotic initiatives to disrupt drug trafficking, destroy coca crops, and support alternative livelihoods for coca farmers, in a bid to quash the cartels.

Trump’s first term as president, beginning in 2017, was marked by renewed counter-narcotic initiatives but he also threatened to decertify Colombia as a cooperative country if it did not take action against its drug cartels.

Tensions between the US and Colombia calmed under former US President Joe Biden, who focused on improving diplomatic ties by designating Colombia as a major non-NATO ally in 2022.

Today, cartels function in a decentralised manner and some have also been designated as terrorist organisations by the US. In December 2025, the Trump administration designated the Gulf Clan, Colombia’s largest illegal arms group, which is also involved in drug trafficking, as a terrorist organisation.

Trump’s second term

In 2022, Petro was elected as Colombia’s first left-wing president and took up office in the presidential palace with promises to lead Colombia in a more equitable, eco-friendly direction.

But tensions with the US flared again when Trump arrived in the White House for his second term in January 2025.

Since then, Petro has been a vocal critic of Trump’s policies, particularly those relating to Latin America.

Last year, the Trump administration began a series of military strikes on Venezuelan boats, which it alleged were carrying drugs, in the Caribbean and eastern Pacific. The Trump administration has struck dozens of boats, but has not provided any evidence that any were trafficking drugs. Petro called the aggression an “act of tyranny”.

Addressing the United Nations General Assembly in September 2025, Petro said that “criminal proceedings must be opened against those officials, who are from the US, even if it includes the highest-ranking official who gave the order: President Trump”, in relation to the boat strikes.

At the UNGA, Petro also criticised US ally Israel’s war on Gaza and called on US troops to “disobey Trump’s orders” and “obey the order of humanity”.

Washington revoked Petro’s US visa after he spoke at a pro-Palestine march outside the UNGA in New York.

Weeks later, the Trump administration also imposed sanctions on the Colombian president, who is set to leave office following a presidential election in May.

In a post on his Truth Social platform in October, Trump said Petro “does nothing” to stop the drug production [in his country], and so the US would no longer offer “payment or subsidies” to Colombia.

Shortly after carrying out the abduction of Venezuela’s Maduro, Trump told reporters on board Air Force One that both Venezuela and Colombia were “very sick” and that the government in Bogota was run by “a sick man who likes making cocaine and selling it to the United States”. “And he’s not going to be doing it very long. Let me tell you,” Trump added.

When asked if he meant a US operation would take place against Colombia, Trump said, “Sounds good to me.”

In response, Petro promised to defend his country, saying that he would “take up arms” for his homeland.

In an interview with Al Jazeera on January 9, however, Petro said his government is seeking to maintain cooperation on combating narcotics with Washington, striking a softer tone following days of escalating rhetoric.

Oil becomes more meaningful when you turn it into fuel.

A barrel contains 159 litres of crude oil, or 42 gallons.

To use this oil, it must be refined. The refining process produces various products, including petrol, diesel, jet fuel and numerous household items, such as cleaning products, plastics and even lotions.

Once refined, a barrel typically produces about 73 litres, or 19.35 gallons, of petrol to power cars and trucks.

A pick-up truck that can drive 24 miles on 1 gallon of petrol, or 100km on 10 litres, can travel about 730km, or 450 miles, from one barrel of oil.

Put another way, one barrel of crude oil can fuel that pick-up on a trip from New York City to Cleveland, Ohio.

Now let’s scale that up to US national consumption. According to the US Energy Information Administration, the US has about 285 million motor vehicles and consumes nearly 9 million barrels of petrol every day.

If all of Venezuela’s crude oil were refined into petrol, it could supply US vehicles for roughly 40 years at today’s consumption rate.

New Delhi, India – The latest release of documents related to the US Justice Department investigation into the crimes of convicted sex offender Jeffrey Epstein has set off political infernos around the globe for featuring the names of world leaders.

The tranche of files, which includes more than three million pages of documents, was released on Friday. This is the largest release since US President Donald Trump’s administration passed a law last year to force the release of the documents.

Epstein was convicted in 2008 of sex offences but avoided federal charges – which could have seen him face life in prison – by doing a deal with prosecutors. Instead, he received an 18-month prison sentence, which allowed him to go on “work release” to his office for 12 hours a day, six days a week. He was released on probation after 13 months.

In 2019, he was arrested again on charges including the sex trafficking of minors. But he died by suicide in a Manhattan jail cell in 2019 before his trial could commence.

With this latest disclosure of documents and emails linked to the cases against him, yet more has been revealed about the disgraced financier’s sexual abuse of young girls and his interactions with wealthy and powerful figures from the United Kingdom, Australia, Norway, Slovakia and India.

Simply being named in Epstein documents or emails does not mean a person is guilty of criminal wrongdoing, and, so far, no charges have been brought against individuals named in connection with the sex offender.

However, the new documents show communications between high-profile figures in the US, including Trump, former President Bill Clinton, and business tycoons such as Bill Gates and Elon Musk.

Here is what we know about some of the powerful men (and one woman) from other countries who have featured in these documents.

Narendra Modi, Indian prime minister

Documents released on Friday reveal conversations between Anil Ambani, the billionaire chairman of Reliance Group who is close to Prime Minister Narendra Modi, and Epstein. All the conversations took place in the years following Epstein’s first conviction for sex offences in 2008.

The two emailed each other about a range of issues, from sizing up incoming US ambassadors to India to setting up meetings for Modi with top US officials.

Ambani is the elder brother of India’s richest man, Mukesh Ambani, who is also close to PM Modi.

On March 16, 2017, two months after Trump was sworn in for his first term as president of the US, Ambani sent an iMessage to Epstein, saying “Leadership” was asking for his help to connect with senior figures in Trump’s circle, including Jared Kushner and Steve Bannon.

Ambani also asked for advice from Epstein about a possible visit by Modi to meet Trump “in may (sic)”, before setting up a call in the messages.

In another iMessage exchange two weeks later, on March 29, Epstein wrote to Ambani: “Discussions re israel strategy dominating modi dates (sic).” Two days later, Ambani informed Epstein that Modi would visit Israel in July and asked the disgraced financier: “who do u know fir track 2”.

On June 26, Modi met Trump in Washington on his first visit since Trump became president.

Then, on July 6, 2017, Modi became the first-ever Indian prime minister to visit Israel. He snubbed the Palestinian Authority, prompting condemnation from Palestinian officials.

That year, New Delhi became the largest buyer of Israeli weapons, amounting to $715m worth of purchases. The defence partnership between the two countries has since continued despite Israel’s genocidal war in Gaza.

This marked a sharp change from India’s history of advocating for the Palestinian cause. It only opened up formal diplomatic ties with Israel in 1992. Before that, Indian citizens had been barred by India from travelling to Israel since the country’s creation in 1948.

After Modi’s visit on July 6, Epstein emailed an unidentified individual he referred to as “Jabor Y”, saying: “The Indian Prime minister modi took advice. and danced and sang in israel for the benefit of the US president. they had met a few weeks ago.. IT WORKED. !”

Ambani Reliance Defence Ltd also entered a joint venture with an Israeli state defence group last year in a deal valued at $10bn over a decade.

Shortly after Modi’s visit to Israel, Larry Summers, former Harvard University president and former secretary of the US Treasury, asked Epstein if he still thought Trump was a better president than rival candidate Hillary Clinton would have been. Epstein responded affirmatively, stating, “yes, defintley India israel. for example great and all his doing (sic).”

In another conversation revealed in the latest document drop, Epstein offered to arrange a meeting between Modi and former White House chief strategist Steve Bannon just hours after Modi had won a thumping majority in the Indian national election in 2019.

In an iMessage to Bannon on May 19, 2019, Epstein wrote, “modi sending someone to see me on thurs,” referring to Ambani.

That Thursday, May 23, Epstein met Ambani in New York and his calendar for that day shows no other meeting scheduled.

After the meeting with Ambani, Epstein wrote to Bannon: “really interesting modi meeting. He won [the 2019 parliamentary elections] with HUGE mandate. His guy said that no one in wash speaks to him however his main enemy is CHINA!   And their proxy in the region pakistan. They will host the g20 in 22.. Totally buys into your vision.”

Epstein then messaged Ambani: “I think mr modi might enjoy meeting steve bannon, you all share the china problem.” And Ambani wrote back: “sure.”

Epstein then wrote back to Bannon: “modi on board.”

It is not immediately clear if Ambani was authorised to approve such decisions on behalf of the Indian government. There is no public record either of a meeting between Bannon and Indian officials that summer.

Hardeep Singh Puri, Indian politician

Another major Indian name featured in the Epstein files is Hardeep Singh Puri, who retired from the Indian Foreign Service to join Modi’s Bharatiya Janata Party in 2014.

In the documents are email exchanges between Puri and Epstein that began in June 2014, with the sex offender writing to Puri about Reid Hoffman, co-founder of LinkedIn, and arranging a visit by Hoffman to India.

Following an exchange of emails, Puri wrote a detailed pitch for investment opportunities in India to Epstein and Hoffman, laying out economic plans in India under the newly elected Modi government, and urging Hoffman to visit. Documents also show Puri met Epstein at his Manhattan townhouse on at least three occasions: February 4, 2015; January 6, 2016; and May 19, 2017.

Puri told Indian media on Sunday that his visits and interactions with Epstein were strictly business-related.

In December 2014, Puri wrote to Epstein again by email. “Please let me know when you are back from your exotic island,” he wrote, asking to set up a meeting in which Puri could give Epstein some books to “excite an interest in India”.

How has the Indian government responded?

India has dismissed the references to Modi in the Epstein files.

“Beyond the fact of the prime minister’s official visit to Israel in July 2017, the rest of the allusions in the email are little more than trashy ruminations by a convicted criminal, which deserve to be dismissed with the utmost contempt,” External Affairs Ministry Spokesperson Randhir Jaiswal said on Saturday.

However, the opposition, led by the Congress Party, has demanded answers about the latest disclosures – particularly those relating to Israel relations.

The Congress Party’s general secretary in charge of organisation, KC Venugopal, wrote in a post on X: “The reports of the new batch of Epstein Files are a huge wake-up call about the kind of monsters who have access to PM Modi, and how susceptible he is to foreign manipulation. The Congress demands that the Prime Minister personally come clean on these disturbing disclosures that raise serious questions.”

Kevin Rudd, former Australian prime minister

Australian diplomat Kevin Rudd, who served as the country’s prime minister from 2007 to 2010 and again in 2013, has also been named in the Epstein files.

Rudd’s name appeared on Epstein’s daily meeting schedule for June 8, 2014, at 4:30pm. On that day, Epstein flew to New York from his private island, Little Saint James in the US Virgin Islands, for several meetings, including with Rudd.

Rudd, who is currently serving as Australia’s ambassador to the US, claims he did not visit Epstein and denies any friendship with him.

But the newly released files show that two days before the scheduled appointment, Epstein emailed his assistant, Lesley Groff, on June 6, 2014 to ask for non-vegetarian food to be made available at the upcoming Sunday lunch “as now kevin rudd is also coming”. Rudd was not in government at the time.

Just seconds later, Epstein follows up in another email to Groff: “Kevin Rudd might also stop by former prime minister austrailia [sic].”

Peter Mandelson, UK politician

The name of Peter Mandelson, a former UK cabinet minister and life peer, had appeared in tranches of Epstein files previously made public. But he resigned from his membership of the UK’s ruling Labour Party on Sunday after yet more links to Epstein surfaced in the latest dump.

Mandelson was sacked as the UK’s ambassador to the US last year over his connections to Epstein.

The latest documents reveal that Epstein made $75,000 in payments to Mandelson in three separate transactions in 2003 and 2004.

In his resignation letter to Labour’s general secretary, Mandelson wrote: “I have been further linked this weekend to the understandable furore surrounding Jeffrey Epstein and I feel regretful and sorry about this.”

He said he had “no recollection” of the payments, however.

The latest documents also show that Mandelson discussed with Epstein by email a campaign against Rudd’s proposed mining tax, which would have taxed “super profits” reaped by mining companies at 40 percent, while Rudd was still prime minister.

Mette-Marit, Norway’s crown princess

The latest disclosures from the US Justice Department have embroiled Norway’s crown princess, Mette-Marit, in the Epstein scandal, as they reveal her years of extensive contact with the sex offender.

Mette-Marit, who is married to Crown Prince Haakon, the heir apparent to the Norwegian throne, appears nearly 1,000 times in the Epstein files, with scores of emails sent between the two.

In the emails, Mette-Marit told Epstein, “you tickle my brain”, and called him “soft hearted” and “such a sweetheart”. In another, she thanked Epstein for flowers he had sent when she was feeling unwell, signing off with “Love, Mm”.

In 2012, Mette-Marit told Epstein he was “very charming” and asked if it was “inappropriate for a mother to suggest two naked women carrying a surfboard for my 15 yr old sons wallpaper?”

The revelations come at a tricky time for Norway’s royal family, with Mette-Marit’s son, Marius Borg Hoiby – who was born before her marriage to Crown Prince Haakon – set to go on trial for rape later this week. Hoiby has been accused of 38 crimes, including the rapes of four women as well as assault and drug offences.

Miroslav Lajcak, Slovakian national security adviser

The new tranche of Espstein files has also prompted the resignation of Slovakia’s national security adviser, Miroslav Lajcak.

Photos and emails released with the documents reveal that he met with Epstein several years after the sex offender was released from jail and exchanged text messages about women in 2018 during his second spell as foreign minister.

On Sunday, Slovakia’s Prime Minister Robert Fico accepted Lajcak’s resignation, and wrote on Facebook that the government was losing “an incredible source of experience and knowledge in foreign policy”, adding that the former minister had “categorically denied and rejected” the allegations made against him.

Canada’s Prime Minister Mark Carney has said that he expects the United States to respect the country’s sovereignty after reports that Alberta separatists have met several times with officials of the Donald Trump administration.

The Financial Times reported that US State Department officials held meetings with the Alberta Prosperity Project (APP), a group calling for a referendum on whether the energy-rich western province should leave Canada.

Speaking in Ottawa on Thursday, Carney said he has been clear with US President Donald Trump on the issue.

“I expect the US administration to respect Canadian sovereignty,” he said, adding that after raising the issue, he wanted the two sides to focus on areas where they can work together.

Carney is himself an Albertan, raised in Edmonton, the provincial capital. The province has had an independence movement for decades.

Trump has repeatedly threatened to make Canada the “51st state” of the American Union.

Here is what we know:

Leaders of the APP have reportedly met with US State Department officials in Washington at least three times since last April. Trump entered office for a second time in January.

These meetings have prompted concern in Ottawa regarding potential US interference in Canadian domestic politics.

This follows comments by US Treasury Secretary Scott Bessent last week, who described Alberta as “a natural partner for the US” and praised the province’s resource wealth and “independent” character during an interview with the right-wing broadcaster Real America’s Voice.

“Alberta has a wealth of natural resources, but they [the Canadian government] won’t let them build a pipeline to the Pacific,” he said. “I think we should let them come down into the US,” Bessent said during an interview with the right-wing broadcaster.

“There’s a rumour they may have a referendum on whether they want to stay in Canada or not.”

Asked if he knew something about the separation effort, Bessent said, “People are talking. People want sovereignty. They want what the US has got.”

After Bessent’s comments, Jeffrey Rath, a leader of the APP, said that the group was seeking another meeting with US officials next month, where they are expected to ask about a possible $500bn credit line to support Alberta if a future independence referendum – which has not yet been called – were to be held.

The developments come at a sensitive moment in US-Canada relations, with trade tensions still simmering and after a recent speech at the World Economic Forum in Davos where Carney warned that Washington was contributing to a “rupture” in the global order.

Trump has repeatedly threatened to make Canada part of the American Union. His expansionist ambitions have been further underscored by his recent push to acquire Greenland from Denmark, which, like Canada, is a NATO ally. At the start of the year, the US military also abducted Venezuelan President Nicolas Maduro, and has since attempted to take control of the South American nation’s massive oil industry.

How have Canadian leaders reacted to the reports?

Speaking on Thursday, British Columbia Premier David Eby described the reported behind-the-scenes meetings as “treason”.

“To go to a foreign country and to ask for assistance in breaking up Canada, there’s an old-fashioned word for that – and that word is treason,” Eby told reporters.

“It is completely inappropriate to seek to weaken Canada, to go and ask for assistance, to break up this country from a foreign power and – with respect – a president who has not been particularly respectful of Canada’s sovereignty.”

Ontario Premier Doug Ford appealed for Canadian unity on Thursday morning.

“You know, we have a referendum going on out in Alberta. The separatists in Quebec say they’re gonna call a referendum if they get elected. Like, folks, we need to stick together. It’s Team Canada. It’s nothing else,” he said.

Alberta Premier Danielle Smith, however, said she won’t demonise the Albertans who are open to separation because of “legitimate grievances” with Ottawa and said she did not want to “demonise or marginalise a million of my fellow citizens”.

Smith has long been pro-Trump and visited the US president’s Mar-a-Lago estate in January 2025, at a time when most other Canadian leaders were joining hands to criticise his demand that the country become a part of the United States.

What do we know about a potential referendum in Alberta?

Anger towards Ottawa has been building in Alberta for decades, rooted largely in disputes over how the federal government manages the province’s vast oil and gas resources.

Many Albertans feel federal policies – particularly environmental regulations, carbon pricing and pipeline approvals – limit Alberta’s ability to develop and export its energy.

As a landlocked province, Alberta depends on pipelines and cooperation with other provinces to access global markets, making those federal decisions especially contentious.

Many Albertans believe the province generates significant wealth while having limited influence over national decision-making. In 2024-25, for instance, it contributed 15 percent of Canada’s gross domestic product (GDP), despite being home to only 12 percent of the population.

Alberta consistently produces more than 80 percent of Canada’s oil and 60 percent of the country’s natural gas.

Yet, many Albertans say that the federal government does not give the province its fair share from taxes collected. Canada has a system of equalisation payments, under which the federal government pays poorer provinces extra funds to ensure that they can maintain social services. While Quebec and Manitoba receive the highest payments, Alberta – as well as British Columbia and Saskatchewan – at the moment receive no equalisation payments.

Carney recently signed an agreement with Alberta, opening the door for an oil pipeline to the Pacific, though it is opposed by Eby and faces significant hurdles.

Recent Ipsos polling suggests that about three in 10 Albertans would support starting the process of leaving Canada.

But the survey also found that roughly one in five of those supporters viewed a vote to leave as largely symbolic – a way to signal political dissatisfaction rather than a firm desire for independence.

A referendum on Alberta independence could happen later this year if a group of residents can collect the nearly 178,000 signatures required to force a vote on the issue. But even if the referendum passes, Alberta would not be immediately independent.

Under the Clarity Act, the federal government would first have to determine whether the referendum question was clear and whether the result represented a clear majority. Only then would negotiations begin, covering issues such as the division of assets and debt, borders and Indigenous rights.

What is the Alberta Prosperity Project and what does it want?

The APP is a pro-independence group that is campaigning for a referendum on Alberta leaving Canada.

It argues that the province would be better off controlling its own resources, taxes and policies, and has been working to gather signatures under Alberta’s citizen-initiative rules to trigger a vote.

While it describes itself as an educational, non-partisan project, the group has drawn controversy over its claims about the economic viability of an independent Alberta.

On its website, the APP says, “Alberta sovereignty, in the context of its relationship with Canada, refers to the aspiration for Alberta to gain greater autonomy and control over provincial areas of responsibility.”

“However, a combination of economic, political, cultural and human rights factors … has resulted in many Albertans defining ‘Alberta sovereignty’ to mean Alberta becoming an independent country and taking control of all matters that fall within the jurisdiction of an independent nation,” it adds.

What else has Washington said?

White House and State Department officials told the FT that administration officials regularly meet with civil society groups and that no support or commitments were conveyed.

A  report published by Canada’s public broadcaster CBC earlier this year quoted US national security analyst Brandon Weichert as saying that Trump’s talk of Canada becoming the “51st state” was, in reality, aimed at Alberta.

Appearing on a show hosted by former Trump chief strategist Steve Bannon, Weichert suggested that a vote for independence in Alberta would prompt the US to recognise the province and guide it towards becoming a US state.

Has the Trump administration tried this elsewhere?

Yes, in Greenland.

As with Canada, Trump has repeatedly called for Greenland to be incorporated into the US. His threats to annex Greenland have prompted strong opposition from the government of the Arctic island, Denmark — which governs Greenland — and Europe.

But as with Alberta, Trump’s administration has also attempted to test separatist sentiment. In August 2025, the Danish government summoned the top US diplomat in Copenhagen after Denmark’s national broadcaster reported that three Trump allies had begun pulling together a list of Greenlanders supportive of the US president’s efforts to get it to join the United States.

Japanese Prime Minister Sanae Takaichi’s tax and spending pledges in advance of snap elections next month have sent jitters through global markets.

Japanese government bonds and the yen have been on a rollercoaster since Takaichi unveiled plans to pause the country’s consumption tax if her Liberal Democratic Party wins the February 8 vote.

The market turmoil reflects concerns about the long-term sustainability of Japan’s debt levels, which are the highest among advanced economies.

The volatility has extended beyond Japan, highlighting broader fiscal sustainability worries in an era in which the United States and other major economies are running huge deficits.

What has Takaichi promised on the economy?

Takaichi said last week that she would suspend the country’s 8 percent consumption tax on food and non-alcoholic beverages for two years if her government is returned to power, following her dissolution of the House of Representatives.

Based on Japanese government data, Takaichi’s plan would result in an estimated revenue shortfall of 5 trillion yen ($31.71bn) each year.

Takaichi, a proponent of predecessor Shinzo Abe’s agenda of high public spending and ultra-loose monetary policy, said the shortfall could be made up by reviewing existing expenditures and tax breaks, but did not provide specific details.

Takaichi’s tax pledge comes after her Cabinet in November approved Japan’s largest stimulus since the COVID-19 pandemic.

The package, worth 21.3 trillion yen ($137bn), included one-time cash handouts of 20,000 yen per child for families, subsidies for utility bills amounting to about 7,000 yen per household over a three-month period, and food coupons worth 3,000 yen per person.

Why have Takaichi’s pledges unnerved markets?

Japan’s long-term government bond yields soared following Takaichi’s announcement.

Yields on 40-year bonds rose above 4 percent on Tuesday, the highest on record, as investors exited from Japanese government debt en masse.

Bond markets, through which governments borrow money from investors in exchange for paying out a fixed rate of interest, are closely watched as a gauge of the health of countries’ balance sheets.

While typically offering lower returns than stocks, government bonds are seen as low-risk investments as they have the backing of the state, making them attractive to investors seeking safe places to park their money.

As confidence in a government’s ability to repay its debts declines, bond yields rise as investors seek higher interest payments for holding riskier debt.

“When Prime Minister Takaichi announced a planned reduction in consumption taxes, this made existing bond-holders of Japan’s debt uneasy, requiring a higher compensation for the risk they bear,” Anastassia Fedyk, an assistant professor of finance at the Haas School of Business of the University of California, Berkeley, told Al Jazeera.

“As a result, bond prices dropped and yields rose. And yes, this is a general pattern that applies to other countries, too, though Japan has an especially high level of debt, making its position more vulnerable.”

Japan’s debt-to-GDP ratio already exceeds 230 percent, following decades of deficit spending by governments aiming to reverse the country’s long-term economic stagnation.

The East Asian country’s debt burden stands far above that of peers such as the US, UK and France, whose debt-to-GDP ratios are about 125 percent, 115 percent and 101 percent, respectively.

At the same time, the Bank of Japan (BOJ) has been scaling back bond purchases as part of its move away from decades of ultra-low interest rates, limiting its options for interventions to bring yields down.

“Bond investors reacted because her headline package looks like large, near-term fiscal loosening at exactly the moment the BOJ is trying to normalise policy,” Sayuri Shirai, a professor of economics at Keio University in Tokyo, told Al Jazeera.

How does all this affect the rest of the world?

The sell-off in Japanese bonds reverberated through markets overseas, with yields on 30-year US Treasuries rising to their highest level since September.

As Japanese bond yields rise, local investors are able to earn higher interest payments at home.

That can incentivise investors to offload other bonds, such as US Treasuries.

As of November, Japanese investors held $1.2 trillion in US Treasuries, more than any other foreign group of buyers.

In an interview with Fox News last week, US Treasury Secretary Scott Bessent expressed concern about the impact of Japan’s bond market on US Treasury prices and said he anticipated that his Japanese counterparts would “begin saying the things that will calm the market down.”

Japan’s long-term bond yields fell on Monday amid the expectations that Japanese and US authorities would step in to prop up the yen.

On Friday, The New York Times and The Wall Street Journal reported that the Federal Reserve Bank of New York had inquired about the cost of exchanging the Japanese currency for US dollars.

“Japan matters globally through flows. If Japanese government bond yields rise, Japanese investors can earn more at home, potentially reducing demand for foreign bonds; that can nudge global yields and risk pricing,” Shirai said.

“This is why global-market pieces have framed Japan’s bond move as a wider rates story.”

Higher bond yields in Japan, the US and elsewhere raise the cost of borrowing and servicing the national debt.

In a worst-case scenario, a sharp escalation in interest rates can lead to a country defaulting on its debts.

Masahiko Loo, a fixed income strategist at State Street Investment Management in Tokyo, said that the reaction of international investors to Takaichi’s plans reflects growing sensitivity to fiscal credibility in highly indebted economies.

“Yes, Japan may be the spark, but the warning applies equally to the US and others with large structural deficits,” Loo told Al Jazeera.

Is Japan on the verge of a financial crisis?

Probably not.

While Japan is more indebted than its peers, its fiscal position is more sustainable than it might appear due to factors specific to the country – at least in the short to medium term – according to economists.

The vast majority of Japan’s debt is held by local institutions and denominated in yen, reducing the likelihood of a panic induced by foreign investors, while interest rates are far lower than in other economies.

“The debt situation is more manageable than a lot of people think,” Thomas Mathews, head of markets for Asia Pacific at Capital Economics, told Al Jazeera.

“Net debt-to-GDP is on a downward trajectory, and Japan’s budget deficit isn’t all that big by global standards.”

Loo of State Street Investment Management said that the turmoil surrounding Japan had more to do with a “communication gap around fiscal sustainability and policy coordination” than the country’s solvency.

“That said, markets are likely to continue testing the feasibility of the agenda, as even fiscally sanguine countries have, at times, been disciplined by market forces,” Loo said.