Source: Sharecast
In line with consensus, Danske Bank expects the BoJ to hike its policy rate to 1.25%. from 1.0%.
"The move has largely been priced in by investors as market pricing has tightened significantly during recent weeks and we do not expect Governor Ueda to push against that," Danske said. "We expect BoJ will signal a nimbler approach to the tightening pace than the very cautious hiking cycle we have witnessed so far. Anything else will weigh heavy on the yen."
Rabobank said that not only is the market largely priced for a BoJ rate hike, but there is an expectation that Ueda will have to follow up with a hawkish message on the pace of rate hikes going forward in order for the JPY to maintain its recent improved tone.
"Assuming the BoJ does hike rates this week, just three months after the last announcement, this will mark the most tightly spaced policy tightening for years," it said. "Given Japan’s recent deflationary issues, and since the two BoJ Board members appointed by PM Takaichi are considered to be reflationists, it is far from clear that there will be broad agreement within the BoJ that a faster pace of rate hikes should be signalled going forward.
"If Ueda cannot telegraph news regarding an accelerated pace of policy tightening tomorrow, the market may be disappointed. This factor, combined with this week’s better tone of the USD suggests room for a ‘sell the fact’ reaction in the JPY versus the greenback into the weekend."
On Wednesday, the US Federal Reserve hiked rates by 25 basis points as expected to between 3.75% and 4.00%. This marked the first hike since 2023 and the decision was unanimously approved with a 12-0 vote.
In the UK, meanwhile, the Bank of England held interest rates at 3.75% on Thursday, as widely expected, for the sixth meeting in a row. The Monetary Policy Committee voted by a majority of 6-3 to keep rates on hold, with the three dissenters - Megan Greene, Catherine Mann and Huw Pill - favouring a 25 basis points hike.
Investors will also eye eurozone construction output figures for July, due at 1000 BST on Friday.