Central banks’ divergences in sight

“Differences in economic paths across countries may lead to diverging monetary policies, creating potential opportunities for global bond investors.”

  • The BoJ raised policy rates after many years, ending the era of negative interest rates.
  • However, banks such as the Fed and BoE are looking to cut rates this year, if inflation returns to their targets.
  • These divergences in global economy and central bank policies may present opportunities in bonds and equities.

On 19 March, the Bank of Japan (BoJ) ended its negative interest rates policy, after raising rates for the first time in 17 years. The BoJ set a new policy rate range between 0.0%-0.1% as it became confident that inflation would increase towards its target. However, the governor’s insistence on maintaining accommodative financial conditions indicates that this is not a new rate hiking cycle. Instead, the bank is likely to be data dependent.

On the other hand, the Fed and the Bank of England kept rates on hold. The Fed showed confidence that inflation is moving towards the 2% target, but did not provide a timeline for its first rate cuts. We think these central banks will keep a keen eye on incoming inflation, as they decide their future policy actions for this year and beyond.

You can now read the full whitepaper at the link below