Thoughts

June 14, 2026 | 14:10

The Central Bank Parade

Economist

Senior Economist and Managing Director
Economics

Jennifer has spent three decades with BMO Capital Markets Economics and is perhaps best known for her clear, no-... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has spent three decades with BMO Capital Markets Economics and is perhaps best known for her clear, no-... (Read more)

It is going to be a mish-mash of monetary policy decisions in the coming week.

The Bank of Japan has held its tongue all year but its patience has run out. It had tweaked policy slowly, but surely, a couple of times a year starting in 2024, and it would have continued in early 2026, but it encountered some roadblocks: PM Takaichi called for an early election in January and, since March, the world has been engulfed in the Middle East conflict. But, the Bank’s tone has been consistently hawkish (recall the April vote was 6-to-3) and the comments from the Board have been increasingly so since then. In fact, Governor Ueda said they will need to “thoroughly discuss the pros and cons of a rate hike” at the June 16 meeting. Unfortunately, he will not be there as he is in the hospital recovering from a hepatic cyst infection, so Deputy Governors Himino and Uchida will cover for him. The Governor will not vote but he will have a written statement. Expect a unanimous vote to lift the overnight call rate 25 bps to 1%. After all, the economy grew at a solid (albeit downwardly revised) 1.8% a.r. in Q1, and real cash earnings have risen for four months in a row, a stretch not seen in over four years. Yes, inflation has cooled, but that is due to government subsidies for energy and childcare costs. Core-core CPI is still near 2%. Besides, the JPY remains very weak at ¥160. Not hiking will throw the BoJ’s credibility out the window and may weaken the currency further. Considering that Japan is an energy importer, that would add more pressure on inflation. However, the hawkishness may be offset if the Bank slows the pace of tapering its bond purchases, which it started in July 2024. Recall the BoJ has always warned that it will stay “nimble” and if there was a “rapid rise” in longterm yields, then the Bank would increase the amount of JGB purchases. The risk is there as 20- and 30-year JGB yields recently hit their highest levels in at least three decades. Meantime, we continue to look for a second rate hike in September.

Our Laurence Mutkin, Director & Head, EMEA Rates Strategy, has firmly stuck to his view that the Bank of England will be on hold for the year. May’s Decision Maker Panel showed price expectations dipping over the 1- and 3-year horizons and the employment outlook turning negative (similar to the latest KPMG/REC jobs survey). Laurence also points to tighter monetary conditions, given the sell-off at the long-end of the curve, political uncertainty weighing on the private sector’s buying/investment decisions, and the wildcard that is oil prices. Plus, the economy shrank at the start of Q2. Although a few members of the MPC remain hawkish, Governor Bailey has taken every opportunity to downplay market expectations of rate hikes. Recently, he alluded to being comfortable allowing above-target inflation given the uncertainty over the conflict in Iran, although “that tolerance would weaken if signs of second-round effects begin to emerge”. Look for the BoE to leave its Bank Rate at 3.75% on June 18.

After raising the cash rate three meetings in a row to 4.35%, the Reserve Bank of Australia signalled in May that it will pause on June 16. In fact, one policymaker voted against the hike, preferring to hold rates on concern that the war will weigh on demand. Although the RBA is still hawkish, Governor Bullock stated that those hikes give it the “space now to sit and see what happens”. We continue to anticipate another hike in August, especially with the trimmed mean CPI at a 6-year high of 3.4%.

We will also hear from the Riksbank, the SNB (both expected to hold), and the Norges Bank (hike).