If BoJ stands pat, USD/JPY lower, but still supported medium term

Even if the BoJ stays on hold as expected at the upcoming meeting, it probably needs to revise both its growth and inflation outlook, as well as its projected timeline (around 1H FY16) for achieving the price stability target.

Weak indicators since the summer have at the very least cast doubt on the BoJ's optimistic outlook. The risk is not large that JPY would suffer a sustained rally beyond 1-2pt in a short period of time if the BoJ does not ease as various indicators suggest light positioning. 

"But one of the reasons USD/JPY has been relatively resilient even as expectations of a Fed rate hike have ebbed is the BoJ's zeal in achieving 2% inflation as soon as possible. As such, if the BoJ revises its outlook down, but leaves policy unchanged, US and Japanese monetary policies would be perceived as diverging less and the Kuroda put might be less feared by the yen bulls", says Bank of America.

That said, Kuroda can most likely keep to market expectations to a good extent by reaffirming the BoJ will not hesitate to implement easing if necessary, which allows to keep the directional scenario for higher USD/JPY (though lower level-wise) even in the case of a hold.