MUFG Research previews the September BoJ policy decision.

"Early tomorrow, ahead of the London open, the BoJ will announce its monetary policy decision with market pricing signalling a near 100% expectations of a 25bp rate hike to 1.25%. We certainly expect the general message from the communications to signal a clear plan to raise rates further which will go some way to endorsing the OIS rate curve priced for further hikes. It would also be consistent with the BoJ aligning itself to the coordinated efforts between Japan and the US to strengthen the yen," MUFG notes.

"That said, there is a notable risk that Governor Ueda’s comments could fall short of what markets are expecting given 90bps of hikes are priced over the next 12mths...The US-JP 2-yr spread is 30bps higher so any disappointment in Ueda matching market pricing could see USD/JPY bounce more notably higher. That said, the retracement in USD/JPY today is notable and suggests from an FX perspective the expected faster pace of BoJ tightening is becoming a more important influence on FX direction," MUFG adds