Despite Japan breaking its deflationary cycle, the Bank of Japan is hesitant to raise rates. The current inflation is primarily attributed to a weak yen and supply-side factors like energy costs, not robust consumer demand. With real consumption still below pre-COVID levels, the central bank remains cautious.
ECB President Lagarde's statement that disinflation is over is likely a backward-looking comment on the progress from 10% inflation. However, the ECB’s own forward-looking forecasts project inflation will fall below its 2% target, suggesting that future rate cuts are more likely than the confident public rhetoric implies.
Germany is planning significant fiscal stimulus via infrastructure and defense spending. However, as a highly trade-open economy, the positive domestic impact could be largely offset by headwinds from a slowing China and potential U.S. tariffs. This limits its ability to meaningfully boost overall European growth.
China's policy to combat deflation focuses on cutting excess industrial capacity. However, this is deemed insufficient because the root cause is weak aggregate demand. A sustainable solution requires boosting consumption through social welfare, an approach policymakers seem hesitant to implement on a large scale.