What to Expect from the Bank of Japan's Final Policy Meeting of the Year

The Bank of Japan (BOJ) is set to hold its final policy meeting for the year next week, with its decision to be announced just hours after the U.S. Federal Reserve's anticipated interest rate cut.

The BOJ ended negative interest rates in March and raised its short-term policy target to 0.25% in July. It has signaled readiness to hike again if wages and prices move as projected.

There is growing conviction within the BOJ that conditions for another hike to 0.5% are falling into place. The economy is expanding moderately, wages are rising steadily, and inflation remains above its 2% target for well over two years.

However, BOJ policymakers appear to be in no rush to pull the trigger with the yen's rebound moderating inflationary pressure and uncertainty surrounding U.S. president-elect Donald Trump's policies clouding the economic outlook.

The decision on whether to hike in December, or wait until a subsequent meeting on January 23-24, will be a close call and dependent on how convinced each board member is that Japan will durably hit the bank's 2% inflation target.

Regardless of whether the BOJ hikes rates or not, Governor Kazuo Ueda is likely to offer guidance on the future rate-path and trigger for action at his post-meeting news conference.