The Bank of Japan delivers the last G7 central bank policy decision of the year on Tuesday, and those hoping that a traditional dose of BOJ dovishness will ease the selling pressure currently slamming world markets may be disappointed.
To be sure, the BOJ will almost certainly keep its key interest rate at an ultra-loose -0.10% and maintain its 'yield curve control' policy, but the winds of change are starting to blow.
Inflation has exceeded the BOJ's 2% target for seven straight months as of October, and November's data later this week is expected to show annual core CPI inflation rising to a new 41-year high of 3.7%.
More significantly, the end of Governor Haruhiko Kuroda's 10-year tenure is drawing into view. He will step aside at the end of March, and many analysts see this as the perfect time for the BOJ to charter a new course.
Sources told Reuters that the government will consider revising a joint statement it signed with the BOJ a decade ago committing the central bank to hitting a 2% inflation target as soon as possible. This would happen once Kuroda's replacement is in situ.
Graphic: Japanese bond yields & yen - 
Japanese stocks fell 1% on Monday to a six-week low, Japanese government bonds remained under pressure - pushing the 10-year yield above the BOJ's 0.25% 'YCC' target - and the yen held its ground against a buoyant dollar.
A hawkish turn from the BOJ would put a year-end rebound even further out of reach for world stocks. With the Fed and ECB turning the screws last week, the MSCI World index has declined four days in a row and the MSCI Asia ex-Japan index has fallen three straight days, its longest losing streak in two months.
China's central bank, meanwhile, is likely to keep benchmark lending rates unchanged for a fourth straight month on Tuesday, although expectations for monetary easing are rising.
In a poll of 27 market watchers, 17 - or 63% of all participants - predicted no change to either the one-year loan prime rate or the five-year rate.
Three key developments that could provide more direction to markets on Tuesday:
- Japan policy decision
- China policy decision
- RBA meeting minutes
(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Deepa Babington)
By Jamie McGeever
