The Bank of Japan (BoJ) is expected to keep policy steady at 0.75% tomorrow, with December inflation close to the 2% target reinforcing the decision, Commerzbank's FX analyst Volkmar Baur notes.

December CPI seen supporting status quo at 0.75%

"Tomorrow morning European time, the Bank of Japan will hold its first monetary policy meeting of the year. In December, the Bank of Japan raised its key interest rate to 0.75%, the highest level in over 30 years. I therefore do not expect the Bank of Japan to raise interest rates again tomorrow. Tomorrow's inflation figures for December are also likely to support this decision. The consensus is that the annual rate will have fallen to 2.2% in December. This would bring it very close to the BoJ's target of 2% and would be the lowest level since 2022."

"On the other hand, the Bank of Japan will certainly be watching the current developments in the JPY with some nervousness. The yen has shown sustained weakness in recent weeks and only seems to have stabilized somewhat in the last few days. This weakness was certainly triggered mainly by political risks such as the ongoing dispute with China and the early elections. However, the Bank of Japan would probably do well not to further fuel this nervousness in the market. A slightly hawkish stance would therefore certainly be appropriate to support the JPY – or at least not to put it under further pressure."