Central bank super week preview: Fed, BOE and BOJ decisions drive market volatility

Why does it matter for traders

Central bank decisions represent some of the most significant market-moving events in the financial calendar. Next week brings a rare convergence of monetary policy announcements from three major economies within just days of each other. Each decision carries the potential to trigger substantial moves across forex markets, indices and individual stocks.

• Bank of Japan (BOJ): 11.00am (HK time) on Tuesday 17 June
• Federal Reserve (Fed): 2.00am (HK time) on Thursday 19 June
• Bank of England (BOE): 7.00pm (HK time) on Thursday 19 June

Traders should prepare for heightened volatility as markets digest policy statements, rate decisions and forward guidance. The coordination of these announcements creates unique trading opportunities but also amplifies risk across global markets.

Understanding the key factors influencing each central bank's decision-making process will be crucial for positioning ahead of these announcements. Let's examine what to expect from each institution.

BOJ faces inflation versus growth dilemma

The Bank of Japan (BOJ) confronts a challenging balancing act between persistent inflation pressures and slowing economic growth. Core consumer prices excluding fresh food surged 3.5% year-on-year (YoY) in April, driven primarily by soaring cereal and energy costs.

Rice prices, a household staple in Japan, have doubled over the past year, highlighting the severity of inflationary pressures. Core inflation has remained at or above the BOJ's 2% target since April 2022, creating mounting pressure for interest rates increases.

However, economic growth has deteriorated significantly, with first-quarter GDP contracting at an annualised rate of 0.2%. This sharp decline from 2.2% growth in the fourth quarter of 2024 was primarily driven by falling exports, exposing Japan's vulnerability to global trade uncertainties.

Real wages have declined 1.8% YoY due to higher inflation, potentially dampening consumer spending and further constraining economic growth. Interest rate futures currently price just a 51% probability of rate changes through 2025, though BOJ Governor Ueda has indicated willingness to raise rates if economic data improves.

While the BOJ will most likely keep rates unchanged at Tuesday's meeting, any hawkish guidance could provide significant support for the yen. Traders should pay close attention to policy statements and press conference commentary for hints about future tightening moves.

Figure 1: Japan's core inflation rate and policy rate

Fed maintains cautious stance amid criticism

President Trump has repeatedly criticised Federal Reserve (Fed) Chair Powell for being 'too late' in reducing interest rates while other central banks, including the European Central Bank, have implemented multiple cuts. However, the Fed's cautious approach reflects several compelling economic factors.

Core Personal Consumption Expenditure inflation has fallen from pandemic peaks of 5.6% to 2.5% in April 2025, but remains above the Fed's 2% target. Trump's tariff policies are expected to add approximately 1.5% to consumer prices according to Yale's Budget Lab analysis, which predicts this impact from increasing the average effective tariff rate from below 3% to 15%.

The labour market shows signs of cooling but remains robust, with unemployment steady at 4.2% and non-farm payrolls exceeding expectations with 139,000 jobs added in May. This combination of persistent inflation and solid employment provides little justification for aggressive rate cuts.

There is a high probability of the Fed staying put at the June meeting as multiple committee members have pointed out the need to observe given the uncertain price and job market impact associated with trade policies.

The market is pricing in one to two rate cuts by year-end, with December Fed Fund futures implying a 3.95% rate. We believe the next rate cut is unlikely before September, making any dovish surprises potentially significant for currency markets.

Figure 2: Implied Fed funds rate for December 2025

BOE grapples with divided committee views

The Bank of England's (BOE) Monetary Policy Committee (MPC) demonstrated clear divisions at May's meeting, with five members voting for a 25 basis point (bp) cut, one member supporting a 50 bp reduction, and two members favouring no change.

As the first country to establish a trade framework with the US, the UK may face reduced tariff impacts compared to other nations. However, domestic factors remain concerning for policymakers, particularly recent inflation and employment trends.

We continue to expect split views amongst MPC members as recent data shows contradictory signals. Inflation unexpectedly jumped to 3.5% after months of cooling, driven by surging utility bills. Meanwhile, payroll employment fell by 109,000 in May, representing the largest contraction since May 2020 and signalling potential economic weakness.

Markets are pricing a 90% probability of unchanged rates at the June meeting, with expectations for two cuts later in 2025, likely in August and December. Any surprise cut or dovish guidance could significantly weaken sterling against major currencies.

Figure 3: UK's employment and inflation data

Technical outlook for key currency pairs

USD/JPY has experienced a technical rebound after declining over 10% from January's peak of 158.9 to late May's low of 142.1. The currency pair faces significant resistance level at the 200-day simple moving average at 150.3. The medium-term downtrend remains intact while USD/JPY trades below this key level. Traders should watch for potential tests of the 146 level, with major resistance at 148.2 before any resumption of the downtrend towards 140.

Figure 4: USD/JPY (daily) price chart

GBP/USD displays a strong uptrend since January, with recent peaks around 1.3616 coming into focus. The lower bound of the uptrend line should provide support level at 1.3435, with material support located around 1.325 if this level breaks.

Figure 5: GBP/USD (daily) price chart

Market implications of central bank decisions

The central bank decisions will have significant implications across various markets, with the Fed's announcement likely to drive the most substantial global impact. The Fed's policy stance influences dollar strength, US Treasury yields, and risk appetite across international markets.

US Dollar movements following the Fed decision will ripple through commodity markets, emerging market currencies, and global equity indices. US Treasury yields may shift significantly based on the Fed's forward guidance, affecting bond trading strategies and global interest rate expectations.

Sterling could see increased volatility around the BOE announcement, particularly if guidance on future cuts differs from market expectations. UK government bonds may react to any dovish signals, with yields potentially falling if the BOE indicates a series of cuts ahead.

The BOJ's decision, while potentially maintaining unchanged rates, could still trigger substantial moves in yen crosses if hawkish guidance emerges. Japanese government bond yields and regional equity markets may respond to any policy communication shifts.

Stock market sectors will likely respond differently depending on their sensitivity to interest rates. For instance, technology stocks may face pressure while financial stocks may benefit from prolonged higher rates.