The Bank of Japan should have the room to stand pat this Friday, given that the 3Q GDP has been revised up and a technical recession was averted. Meanwhile, the impact from a possible Fed move needs to be closely watched this week. The USD/JPY rate has retreated in the past one week as the expectations for Fed tightening have depressed risk sentiment in the global markets. The BOJ may want to know whether this is a temporary phenomenon. Theoretically, the Fed's hikes should widen the gap between the UST and JGB yields, encourage more Japanese investors to invest abroad, and put upward pressures on the USD/JPY. 

Looking ahead, further BOJ easing still can't be ruled out for 2016. Downside risks to the growth outlook remain significant due to a high degree of uncertainties in the external environment. The trade data due this week will likely show that exports have contracted for the second month in a row in Nov15. The latest Tankan survey revealed that business conditions will be stable in the current quarter, but deteriorate in the next. 

If growth were to remain subpar for a prolonged period, it would pose challenges on the wage and inflation outlook. Some of the key indicators tracked by the BOJ - inflation expectations, wage growth and "core core CPI" - have showed tentative signs of softening. Further weakness in these indicators will raise concerns amongst policymakers about the achievability of the inflation target and the sustainability of recovery