Monetary policy normalisation has been gaining traction since the start of 2022, mainly led by central banks in developed markets. It started with a hawkish pivot by the Federal Reserve. Jerome Powell, chair of the American central bank, delivered a hawkish message at the press conference following the Fed’s January meeting, which was consistent with the hawkish tone of the minutes from the December meeting that were released in January. As a result, the market is currently expecting the Fed to deliver six rate hikes this year, compared to only three rate hikes expected as recently as December. The European Central Bank followed suit in February. While it did not take any immediate policy action at its February meeting, ECB president Christine Lagarde no longer referred to a rate hike this year as “highly unlikely” and various ECB officials suggested that one or more hikes later this year are possible. In contrast, most central banks in Asia have not joined the hawkish shift. Only two major central banks in the region, the Bank of Korea and the Monetary Authority of Singapore , have embarked on monetary policy normalisation so far. Meanwhile, the People’s Bank of China has cut its policy rate recently, while the Bank of Japan is keeping its ultra-easy monetary policy unchanged. The divergent policy cycles are mainly due to the very different inflation outcomes in Asia compared to the rest of the world. Inflation in the United States , the United Kingdom and the euro area is running at multi-decade highs and currently above central banks’ inflation targets. While the initial increase in inflation in these developed economies last year was mainly driven by an intense squeeze on goods prices – for example, used car prices in the US – there has since been a broad acceleration of service prices adding to the inflationary pressures. However, inflation appears to be less challenging for central banks in Asia. Among the major economies in the region, China’s January consumer price index dipped below 1 per cent , while Japan’s core inflation was in negative territory in January. The mild inflationary pressure is mainly a result of less buoyant consumption. One common theme in Asia is stricter Covid-19 policies compared to other regions, which have weighed on consumption, especially services consumption . Moreover, fiscal stimulus in Asia has been more skewed towards supporting investment rather than boosting consumption through direct income transfers to households as we have seen in the US. We expect the PBOC and the BOJ to buck the hawkish trend for central banks this year. In the case of China, Beijing has already moved to a modest easing mode since July last year and we have seen a further dovish shift in recent months. More easing measures are likely as the Chinese economy is facing headwinds from lingering weakness in the property sector and recurring local Covid-19 outbreaks. Hong Kong won’t win Covid-19 fight by blindly following mainland policy For Japan, even though higher commodity prices and a weaker yen will likely push up its headline inflation in the coming months, it is unlikely to trigger monetary policy normalisation by the BOJ. The BOJ has failed to hit its inflation target for many years. The key for a sustained rise in inflation in Japan is long-term inflation expectations, and these are unlikely to change significantly in the near term after being stuck at low levels for many years. Wage inflation in Japan has been muted in recent years, which suggests households’ tolerance of inflation is relatively low. This will likely limit any change in Japanese companies’ price-setting behaviour. Most of them are reluctant to raise prices for fear of customer churn, a repeat of 2013-14 when Japanese households responded to cost-push inflation for food and other daily necessities by shifting to lower-priced goods amid weak wage growth. That said, a plausible trigger for normalisation of Japan’s monetary policy is if political or public opinion becomes critical of rising inflation. With the Upper House election coming up in the summer, the Kishida administration will likely keep a close eye on public opinion. In the past, higher inflation has tended to weigh on Japan’s consumer sentiment, especially when it has been driven by higher food and energy prices. Elsewhere in Asia, we expect a gradual move towards policy tightening through the course of the year for central banks in India, Taiwan and some of the economies of the Association of Southeast Asian Nations. On the whole, with strong current account surpluses and relatively stable inflation and currencies in most Asian economies, it does seem monetary policies in the region are less sensitive to the Fed’s hawkish shift than in the past. Instead, domestic inflation and growth are playing a bigger role in driving monetary policy in Asia, which means Asian central banks may not need to tighten as much as the Fed. Sylvia Sheng is a global multi-asset strategist at JP Morgan Asset Management