06:59 AM EST, 01/20/2025 (MT Newswires) -- One of the main events this week will be the release at 9:30 p.m. ET on Thursday of the Bank of Japan's policy statement, said Mitsubishi UFG.

USD/JPY fell back towards support at the 155.00 level at the end of last week as market participants moved to more fully price in the probability of the BoJ hiking rates this week for the third time in the current tightening cycle, wrote the bank in a note to clients.

According to Bloomberg, the Japanese rate market is currently pricing in around 21bps of hikes for this week's policy meeting.

One factor that may have delayed a rate hike in December was the political uncertainty following the LDP losing its working majority in parliament following the election in late October, stated MUFG.

However, the political landscape is now more stable and the government has been clear recently that the decision to hike rests with the BoJ. Finance Minister Katsunobu Kato last week stated that the "specifics of monetary policy" should be left to the BoJ.

Data from last week will encourage the BoJ to act, pointed out MUFG. BoJ survey data released on Friday revealed an average inflation rate expected over the next five years of 9.2%, the highest in the data series going back to 2006. A record 45.8% of households expect prices to rise "significantly" over the next five years.

Media leaks have become common ahead of BoJ rate hikes and the Nikkei reported at the end of last week that a majority of Monetary Policy Members will vote to hike this week, added MUFG.

The only thing that could prevent the BoJ from hiking rates this week would be an unfavorable market reaction to Donald Trump's first days in office as United States President adding to the BoJ's caution, according to MUFG. With markets already more fully pricing in another hike, MUFG doubts the yen (JPY) will strengthen significantly especially as the updated guidance is likely to stick to gradual rate hike plans.