Global central banks turn hawkish: Federal Reserve leads the way, Bank of England and European Central Bank remain cautious, Bank of Japan gradually raises rates

⑴ Federal Reserve Chair Walsh sent a clear hawkish signal in his first press conference, emphasizing the price stability objective. The dot plot's 2026 median has been raised from rate cut expectations to the 3.4%–3.8% range, which is already above the current target rate level. More and more policymakers support further tightening. Walsh hinted that if inflation rises above expectations, rate hikes may resume before the end of the year. However, the US-Iran agreement has marginally reduced the tail risk of inflation, supporting the narrative of transitory inflation.⑵ The Bank of England kept the rate unchanged at 3.75% as expected, with a 7-2 vote. Megan Greene joined the Peel camp in supporting a 25 basis point hike. The overall signal remains patient. Market pricing is generally aligned with the central bank's stance, with roughly one rate hike priced in before the end of the year, but the actual result may range from no action to two hikes.⑶ The European Central Bank maintained its meeting-by-meeting decision guidance, providing no clear forward guidance, but post-meeting comments were slightly dovish. It was emphasized that unless energy prices rise significantly, the threshold for a July rate hike remains high. The latest forecasts still imply one additional rate hike. September remains the main focus, but inflationary pressures may ease in the autumn, and by then the central bank will have a clearer judgment on war-related growth risks. The scenario of a pause after one hike cannot be ruled out.⑷ The Bank of Japan raised rates by 25 basis points to 1% as expected, reaffirming that further tightening will proceed at a gradual pace. Policy normalization remains slow and insufficient to offset the macro headwinds facing the yen in the short term. Real interest rates will stay deeply negative, continuing to suppress the yen and reinforce its role as a funding currency for carry trades. However, as USD/JPY approaches the 161.96 cycle high, intervention risk is rising and may slow the pace of further yen weakening.