The City of London may be fixated on gilt yields and the Bank of England's next move, but a curious spat between Donald Trump and Japan over anime has revealed an unexpected asset in Britain's soft power arsenal. As markets digest the fallout from the former president's unflattering portrayal in a Japanese cartoon, the UK's cultural diplomacy has emerged as a subtle counterweight to transatlantic tensions.
The row erupted after a Japanese animation studio released a short film depicting Trump as a bumbling, gold-obsessed caricature. The Japanese government, sensitive to its alliance with the United States, initially distanced itself from the production. But the backlash from domestic audiences was swift and fierce, with critics accusing Tokyo of kowtowing to a foreign leader. Enter the British Council, which quietly stepped in to host a series of cultural exchanges highlighting the shared values of creativity and freedom of expression between the UK and Japan.
For a markets man like myself, this might seem a frivolous distraction from the serious business of inflation and fiscal discipline. But consider the economic implications. The UK's creative industries contribute over £100 billion to the economy, and Japan is a key market for British music, film and television. More importantly, cultural ties lubricate trade deals. When the UK was negotiating its post-Brexit trade agreement with Japan, the British Council's groundwork in promoting British culture helped smooth the path.
The timing is apt. With UK inflation stubbornly above target and the Bank of England treading carefully on rate cuts, any boost to exports is welcome. The creative sector is a rare bright spot in the UK's trade balance, and Japan's appetite for British culture is insatiable, from Shakespeare to Spice Girls. The anime row has inadvertently highlighted the soft power that London can wield, even as it struggles to project hard power after years of defence cuts.
Critics will scoff that cartoons are a poor substitute for aircraft carriers. But in the battle for global influence, cultural capital counts. When the US administration is perceived as erratic, a steady stream of British cultural exports can reassure foreign investors. The UK's ability to mediate cultural spats, while maintaining its own critical perspective, is a diplomatic asset that the market should not ignore.
Of course, none of this excuses fiscal profligacy. The government's borrowing binge is a concern, and yields on 10-year gilts remain elevated. But a well-executed cultural diplomacy strategy can enhance the UK's reputation as a stable, creative hub for business. It may not move the needle on the FTSE 100, but it does strengthen the brand. And in a world of intangible assets, brand equity matters.
The Japanese backlash has been a test case. The UK's response has been measured, deftly avoiding gratuitous criticism of the US while reinforcing ties with Tokyo. This is the kind of nimble diplomacy that markets appreciate, as it signals a government capable of navigating choppy geopolitical waters without spooking investors.
So as the Bank of England mulls its next move and the Chancellor wrestles with the deficit, spare a thought for the quiet triumphs of cultural diplomacy. In the long run, the bottom line may benefit more from a well-timed anime festival than from another round of quantitative easing.
