The Bank of Japan (BoJ) kept key rates unchanged today, but signaled a possible shift in policy by adopting a flexible upper bound for long-term rates. This reflects their revised inflation outlook, expecting it to top 2% in 2023 and 2024.

• BoJ holds rates, but rumors swirl about policy shift: The Bank of Japan maintained its current monetary policy, but speculation about future tightening continues. Investors eagerly await the central bank’s next move, with hints about phasing out negative rates potentially boosting the yen.

• Japan’s outlier stance: Unlike other central banks raising rates, the BoJ has stuck to its ultra-loose policy. However, rising inflation above the target of 2% puts pressure on this stance, and a policy change in 2024 is expected.

• Global divergence: While the BoJ looks toward tightening, other central banks like the Fed and ECB have signaled potential rate cuts next year. This divergence in policy creates a complex market landscape.

• Market noise vs. reality: Markets have priced in significant rate cuts across major central banks, despite conflicting messaging from policymakers. This week’s inflation data from the US and UK could offer reality checks.

• Eyes on the yen: The yen has strengthened against the dollar in recent weeks, fueled by speculation about the BoJ’s next move. This week’s meeting, while unlikely to bring immediate changes, could hold surprises and further impact the currency.

• Technicals: For traders, USD/JPY faces resistance at 142.61 and 143.06, with support at 142.02 and 141.57. EURJPY is consolidating after a decline, with support levels around 200/233-day SMA, the rising trendline, and the 38.2% Fibonacci retracement.