EM ASIA CREDIT: Hengjian International Investment Ltd

Brad Setser has made some comments on X this morning expanding on his previous remarks on the issues the US faces in trying to lower Pharmaceutical prices for domestic consumers: https://x.com/Brad_Setser/status/1922089788238131257

• “The underlying issue is simple -- after the 2017 Tax Cuts and Jobs Act, America's major pharmaceutical companies (the top 6, aka "Big Pharma") have more or less stopped paying any US tax on the current earnings.”
• “How do they do it? By manipulating their internal transfer pricing so that they report earning all their money abroad (even though drug prices are much lower abroad than in the US.”  https://t.co/qw8YMJNwXF
• “Since the drug companies report earning all their profit abroad, they are taxed in the first instance abroad. In fact, all the money that the top 6 set aside out of 23 and 24 earnings to pay tax was set aside to pay foreign tax.”
• “Producing the actual active pharmaceutical ingredients abroad is an essential part of this tax strategy, something that has become VERY apparent in the q1 2025 trade data (given the threat of pharmaceutical tariffs)”
• “US policy here is incredibly self defeating -- we are paying the world's highest prices for pharmaceuticals, but not getting any tax revenues out of our largest and most profitable companies. And also not getting any of the high tech production jobs.”
• “Tariffs are one solution to the problem -- but it would be a lot better to address the problem at its source, by fixing the incentives in the tax code that have led companies to produce abroad”
• “And the current version of the tax legislation out of the House does the exact opposite -- it keeps the tax on global intangible profits at a low 10.5% (50% of the headline rate), which is an incentive to shift profit out of the US”

• “And if you have doubts that tariffs on critical meds will stick (as I do), it is all the more important to change the underlying incentives in the tax code.”

  

In Tokyo morning trade, JGB futures are holding sharply weaker, -78 compared to settlement levels.

• (MNI Several Bank of Japan's board members expressed caution about raising interest rates at the April 30-May 1 meeting, citing significant uncertainty over the outlook for the economy and prices, according to the summary of opinions released Tuesday, with policymakers agreeing that the timing of any future rate hike must be considered carefully.
• The summary did not offer any hint regarding the pace or timing of rate increases, reflecting the board's cautious stance at the meeting, which lead to a hold of the 0.5% policy rate.
• BoJ Deputy Governor Uchida is scheduled to appear before the Japanese parliament today at 10:35 AM JST.
• Cash US tsys are 2-3bps richer in today’s Asia-Pac session after yesterday’s heavy session sparked by news that the US and China agreed to pause their retaliatory reciprocal tariffs for 90 days.
• Cash JGBs are 1-2bps cheaper across benchmarks out to the 10-year but 3-5bps richer beyond. The benchmark 30-year yield is 3.4bps lower at 2.959% ahead of today’s supply.
• Swap rates are flat to 3bps higher. Swap spreads are wider.

• The PBOC issued CNY180 bn of 7-day reverse repo at 1.4% during this morning’s operations.
• Today’s maturities CNY405bn
• Net liquidity injected CNY225 bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.40%, from yesterday’s close of 1.49.
• The China overnight interbank repo rate is at 1.41%, from the prior close of 1.35%.
• The China 7-day interbank repo rate is at 1.40%, from the prior close of 1.55%.