Geopolitical Risk Brief: February 2026

Our country risk experts provide insight into key geopolitical events that could impact the economic environment in February. 

The ruling Liberal Democratic Party (LDP) won the Feb. 8 general election with 316 seats, resulting in a stand-alone two-thirds “super majority” in the 465-seat Lower House of the National Diet. Control of the Lower House indicates significantly increased government stability for Prime Minister Sanae Takaichi and the LDP. 

The outcome reverses the LDP’s prior minority government position holding 198 seats, requiring opposition cooperation to pass essential legislation. The LDP has now attained the threshold required to pass most bills without approval from the Upper House, chair all parliamentary committees — notably, the budget committee — and defuse the threat of opposition no-confidence motions.

Takaichi has advocated a “proactive fiscal policy” to boost household spending and “growth sectors,” although market concerns over Japan’s fiscal sustainability will likely persist until the administration clarifies funding mechanisms. According to the LDP’s campaign agenda, spending proposals will prioritize defense and “economic security” investments in high-tech “growth sectors” such as semiconductors, AI and quantum computing.

Takaichi has also emphasized a commitment to fiscal discipline, including pledges to avoid additional bond issuance to fund tax cuts, while aiming for a near-term primary budget surplus. This policy agenda has generated adverse financial market reactions including upward pressure on government bond yields and further weakening of the yen. The result reinforces Takaichi’s position within the LDP for the next party leadership election in 2027.   

On Feb. 10, the European Parliament voted in favor of a European Central Bank proposal to adopt both offline and online versions of a “digital euro.” The vote clears a path toward probable phased implementation by 2029–30.  

On May 5, 2026, a further key indicator on the nature and timing of implementation will be triggered when the European Parliament’s Committee on Economic and Monetary Affairs is scheduled to vote on ECB proposals to establish the legal framework to launch the digital euro. After a proposed pilot run in 2027, the ECB aims to start issuing the digital euro in 2029. 

Trilateral negotiations between the European Parliament, the European Council and the European Commission are likely to include additional compromises around online and offline functionalities, interoperability with existing payment systems, and safeguards for cash usage. 

Deposit competition and outflows pose the main risks for banking sectors from the digital euro. Its lack of interest remuneration, holding limits, a gradual rollout, and restrictions on its use for non-euro area households are likely to limit adverse implications for both euro area and non-euro area EU banking sectors from future introduction of the digital euro. 

Limitations on the size and circulation of the digital euro make it insufficient to mitigate the potential replacement of euro-denominated international financial transfers with US dollar-denominated digital deposit and stablecoin-based payments. 

The governments of Mexico and the US announced on Feb. 4 a joint action plan on critical minerals aimed at “developing trade policies and mechanisms that mitigate critical mineral supply chain vulnerabilities.”

Both governments agreed to develop preferential trade of these goods through increased regulatory cooperation, investment promotion, coordinated stockpiling and price floors, among others. Within 60 days after the plan’s publication, Mexico and the US will agree on a list of applicable minerals and will identify mining, processing or manufacturing projects that can be supported financially and via enacting regulations to advance their development.

Initial implementation is likely to focus on minerals in which Mexico is already a relevant producer, including silver, fluorspar, baryte, lead, zinc and copper. S&P Global Market Intelligence data shows that virtually all Mexican exports of silver, fluorspar and baryte go to the US. Mexico also exports most of the processed articles of lead, zinc and copper to the US, but almost all ores and concentrates are exported to Asian markets, particularly South Korea and mainland China.