Super Central Bank Week Arrives! Japan Leads With A Rate Hike As Developed Economies End The Rate‑Cut Cycle, Will The Fed Cut Alone Next Year?

The global easing cycle that characterized 2025 is approaching its conclusion. During this final concentrated week of central bank decisions, a clear tendency for developed economies to “apply the brakes” has emerged, producing pronounced divergence among major central banks and introducing fresh uncertainty for markets in the year ahead.

On Thursday, December 18, the Bank of England and the European Central Bank will announce their rate decisions, followed by the Bank of Japan on Friday. Central banks in Thailand, Indonesia, Sweden, Norway, Mexico, Russia and Hungary will also publish policy decisions next week. The most notable development centers on Japan, where markets broadly expect the Bank of Japan to deliver a landmark rate increase this Friday, a move that stands in stark contrast to the easing trend seen across much of the past year.

European policymakers appear more cautious. A Bloomberg survey indicates economists uniformly expect the Bank of England to cut rates this week, though that action is likely to be among the final steps in its current easing cycle. The European Central Bank is widely expected to hold rates steady and may revise up growth forecasts; market participants will scrutinize any signals that suggest a shift toward tightening. Against this backdrop, the Federal Reserve’s recent cut left its future path ambiguous. If other developed central banks pause or reverse easing while Japan tightens, the Fed could find itself acting alone on further rate reductions, a scenario that would alter global capital flows and asset‑pricing dynamics.

The Bank of Japan’s decision is the focal point of the week’s agenda. Bloomberg reports that Governor Kazuo Ueda’s policy committee is expected to raise the policy rate to 0.75% at Friday’s meeting, marking the first increase since January. Support for a tightening move may be reinforced by Monday’s Tankan survey, which is anticipated to show continued improvement in large manufacturers’ business sentiment for the quarter ending in December. Japanese authorities have signaled their intent to prepare markets for a rate rise, and November CPI data due on Friday are expected to show core inflation holding near 3.0% year‑on‑year, further underpinning the case for policy normalization.

By contrast, the Bank of England is poised to ease policy, though analysts view any cut as likely near the end of its easing cycle. Bloomberg’s economist survey points to a unanimous expectation of a rate reduction on Thursday, and attention will focus on whether dissenting policymakers from the prior meeting shift their stance. The European Central Bank is expected to maintain current rates, with Bloomberg Economics’ ECBspeak indicator showing hawkish officials in the ascendancy and making a December hold the probable outcome. Markets will closely watch President Christine Lagarde’s remarks and the ECB’s updated quarterly projections for clues about the timing of any future tightening. Other European central banks, including those of Sweden, Norway and the Czech Republic, are also expected to keep rates unchanged this week.

The Federal Reserve recently implemented a 25‑basis‑point cut, and market consensus anticipates further easing next year. Major banks differ on timing: some project an additional cut in January, with follow‑up moves in subsequent months, while others expect a period of assessment after early easing. Commentary from several institutions suggests that the Fed’s more hawkish language in policy statements is intended to balance the cut and avoid signaling an overly accommodative stance. If the Fed continues to ease while other advanced economies pause or tighten, it may effectively be the sole major central bank cutting rates, a divergence that would have significant implications for global financial conditions.

Policy divergence is also evident across emerging markets. Bloomberg reports that Thailand’s central bank is expected to cut by 25 basis points on Wednesday, while views on Indonesia’s central bank are mixed. In Latin America, Chile and Mexico are forecast to ease policy this week, whereas Colombia may hold rates at 9.25% following stronger‑than‑expected inflation data. The Russian central bank could cut again on Friday, though the magnitude may be smaller than prior moves, potentially around 50 basis points. This two‑speed monetary landscape suggests 2026 will present a more complex environment for investors, who must account for widening policy differentials across economies.

Currency markets are likely to reflect these policy divergences. With markets pricing continued Fed easing next year while several other central banks maintain or raise rates, analysts at major banks expect the dollar to face depreciation pressure in 2026. If U.S. rate cuts exceed expectations and non‑U.S. economies strengthen, the relative attractiveness of dollar assets could diminish and place sustained downward pressure on the currency.