Atlas Macro

Central Banking

Central Banks Beyond the Fed: the ECB, Bank of England and Bank of Japan

The Federal Reserve gets most of the attention, but three other central banks shape markets every week: the European Central Bank, the Bank of England and the Bank of Japan. Each has a different mandate, a different set of problems and a different way of communicating. Gaps between their policies drive currencies and ripple through global bond markets.

6 min read · Figures checked October 2026

1. The European Central Bank (ECB)

The ECB, based in Frankfurt, sets monetary policy for the countries that use the euro: 21 since Bulgaria joined in January 2026. Its Governing Council, made up of six executive board members and the governors of each member's central bank, meets every six weeks. Its mandate puts price stability first, defined since 2021 as 2% inflation over the medium term.

Its main rate

The deposit facility rate, which banks earn on money parked at the ECB, is the rate markets watch. It was negative from 2014 to 2022 (as low as −0.5%), rose to 4% by September 2023 to fight inflation, and was cut back to 2% by June 2025.

Its special problem: one rate, many economies

A rate that suits Germany may not suit Italy. When investors worry about a weaker member's debt, its bond yields can rise far above Germany's, as in the 2010–12 debt crisis. Mario Draghi's 2012 pledge to do "whatever it takes" to save the euro calmed that crisis, and in 2022 the ECB created a new tool (the Transmission Protection Instrument) to buy bonds of countries whose borrowing costs rise for reasons it judges unjustified.

2. The Bank of England (BoE)

The Bank of England has set UK interest rates independently since 1997. The government sets its target, 2% CPI inflation, and the nine-member Monetary Policy Committee (MPC) decides how to reach it at eight meetings a year.

Its main rate

Bank Rate went from 0.1% in 2020 to 5.25% in August 2023, its highest since 2008, as UK inflation peaked at 11.1%. Cuts began in August 2024, and Bank Rate was 4% by August 2025. Because many UK mortgages are fixed for only two or five years, rate changes reach households faster than in the US, where 30-year fixed mortgages are the norm.

Its style

Unlike the Fed, the MPC publishes each member's vote. Decisions like 5–4 are not unusual, and markets read the split as a signal of where policy is heading. Each quarter the Bank also publishes its Monetary Policy Report with forecasts for growth and inflation.

Case study: the 2022 gilt crisis

In September 2022 a government mini-budget promising large unfunded tax cuts sent gilt yields sharply higher. Pension funds using liability-driven investment (LDI) strategies faced collateral calls and had to sell gilts, which pushed yields higher still. The Bank stepped in with temporary gilt purchases while it was trying to tighten policy, showing that financial stability can force a central bank to act in two directions at once.

3. The Bank of Japan (BoJ)

Japan's problem for most of the past 30 years was the opposite of everyone else's: prices that barely rose, or fell. The Bank of Japan responded with zero and then negative interest rates (−0.1% from 2016), huge bond and share purchases, and from 2016 to 2024 "yield curve control", capping the 10-year government bond yield.

As inflation finally rose after 2022, the BoJ ended negative rates in March 2024, its first rise in 17 years. It raised again to 0.25% in July 2024 and to 0.5% in January 2025, the highest since 2008.

Why a 0.25% rise shook global markets

Years of near-zero Japanese rates had made the yen the world's favourite currency to borrow for carry trades. When the BoJ raised rates in July 2024, just as weak US jobs data pointed to Fed cuts, the yen jumped. Investors rushed to repay yen loans, and on 5 August 2024 Japan's Nikkei index fell 12% in a day, its worst fall since 1987, with sell-offs spreading worldwide.

4. Why the differences move markets

  • Currencies: money tends to flow towards higher interest rates. When the Fed raised rates much faster than the ECB and BoJ in 2022, the dollar rose sharply and the yen fell to its weakest in more than 30 years.
  • Bond yields: global bond markets are linked. Rising yields in one big market pull investors away from others, so yields tend to move together.
  • Policy divergence: when one central bank cuts while another holds, the gap can move exchange rates for months.
  • Spillovers: Japanese investors hold over $1 trillion of US Treasuries. A change in Japanese policy can therefore affect US yields.

Other central banks matter too: the People's Bank of China steers the world's second-largest economy and manages its currency closely, and the Swiss National Bank has intervened heavily to stop the franc rising in times of stress.

Key takeaways

  1. 1The ECB sets one interest rate (the deposit facility rate) for the whole euro area, which makes divergence between member countries its biggest challenge.
  2. 2The Bank of England's nine-member committee publishes how each member voted, so split decisions are common and closely read.
  3. 3The Bank of Japan kept rates at or below zero for most of 25 years; its first rise in 17 years came in March 2024.
  4. 4Differences in interest rates between countries are one of the main drivers of exchange rates.
  5. 5Because bond markets are linked, a surprise from one central bank can move yields worldwide, as the Bank of Japan's July 2024 rise showed.

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Educational content only. It describes how markets have behaved in the past and is not investment advice.

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