Bank of Japan in a difficult position- Nikkei 225 in the spotlight

The Nikkei 225 reacted negatively to the latest Tokyo regional CPI data released late yesterday evening. As reported, that CPI print was well above previous readings, at 2.6% annualised. The Nikkei fell back below 38k as a result of this, hitting a session low at 37,986, before later closing just 141 points lower, at 38,208. Well, given the size of that inflation price increase, it is something of a surprise the index did not fall further quite honestly. So, next month the Bank of Japan (BOJ) is due to decide on monetary policy on December 19. That is the same timeline as we get the same from the Bank of England later that day. Right now the markets are pricing around a 60% chance of the BOJ increasing their current 0.25% OCR (Official Cash Rate). That market pricing sure has been enhanced by the CPI data last night. The thing is; the BOJ do not want to raise rates, but further price pressure is forcing their hand. You saw how the USD/JPY reacted to all this today and the Nikkei 225 will be very much in the firing line. If the index is to keep the recent upside momentum, from the more than 25% slide it suffered in August, it would need loose monetary policy to remain in place. Well, right now that is clearly in doubt. The Nikkei futures are now lower this morning