By continuing to hike rates further into restrictive territory in an environment where overall inflation has already started to come down meaningfully, they deliberately run the risk of overtightening. This is seen as a risk worth taking, because rate hikes are more easily reversed than long-term inflation expectations. We expect the BoJ to join the camp of central banks’ tightening policy, but only slowly. This corresponds with the gradual pace with which Japanese inflation and wage data have been rising as of late.

While we see hiking cycles for many DM central banks being extended till the end of Q3, the PBoC is in an entirely different situation. Chinese growth is stagnating, despite the post-Covid reopening and policymakers having been easing conditions to stimulate the economy. Ain’t no mountain high enough indeed has a different meaning for individual central banks.