BOJ largely expected to stay on hold, post-Fed volatility may sway debate

Bank of Japan policymakers are optimistic about the improvement in the underlying inflation trend, and are likely to hold back additional monetary easing at their meeting on Friday. Companies in Japan are gradually raising prices and the economy is recovering moderately. 

However, global market volatility post-Fed meeting could yet force their hand. The debate may swing in favour of easing if the BOJ sees the fallout from the market rout as hard to ignore, or if the U.S. Federal Reserve's message on the future pace of rate hikes triggers a fresh round of market volatility. Given Governor Haruhiko Kuroda's upbeat tone on prospects for achieving his 2 percent inflation target, many analysts expect the BOJ to maintain its pledge to expand base money at an annual pace of 80 trillion yen ($677 billion).

The BOJ may prefer to save its ammunition until April as political pressure for monetary stimulus may heighten ahead of nationwide elections in July. Kuroda may try to keep alive expectations of future action by signalling that more stimulus could still be forthcoming.