Central banks have been on their toes to increase interest rates this year. This was possible because the economies are booming. But I expect concerns about the negative impact of oil price hikes to return from now. So central banks from Korea to China and Japan will have a close eye on domestic demand and growth as well. Further rate hikes might come later than expected.

Current interest rate hikes have focused on an early end of ZIRP. The 10-year benchmark bond is already overshooting average loan rate movements. I do not think that the BOJ is happy with this development and will not allow interest rates to increase too fast.

Most economists are now very bullish about the economy. I rather think that inflation risks remain limited and that the BOJ is becoming increasingly concerned about the fast hike of benchmark interest rates. It will rather wait and see if the economy remains strong into the second half of the year. September-October remains to be a good time for its first interest rate step.

Besides the usual declaration about international imbalances, the concern will be about growth risks from oil prices and interest hikes. This might help to end automatic interest hikes internationally, and induce central banks to further watch the economies before venturing into further interest steps.

Policy in China seems to be well on the way towards further market reform. Capital account regulations will be relaxed further and investment possibilities expanded. This won’t weaken the Dollar, however. The main offer that might come from Mr. Hu is therefore to expand domestic demand further. This is risky because the economy is still at the edge of overheating. But it is also what investors really like to hear.