The Bank of Japan (BOJ) will discuss its bond-market peg and whether it should be adjusted at its meeting this week. The yen's strength at 128 per dollar is weighing on Japanese equities, but Asian stocks are extending their overall winning streak on hopes of China reopening. Global inflation data due this week may also confirm investors' belief that the worst of the global price squeeze has passed.

The Boj is under pressure to change its interest rate policy as soon as Wednesday after an attempt to buy itself breathing room backfired, emboldening bond investors to put the BOJ to the test. To extend the life of its yield curve control (YCC) policy, the BOJ shocked markets last month by raising the 10-year yield cap to 0.5%. However, this has caused investors to expect a significant change in the BOJ's policy, causing bond sellers to breach the 0.5% yield cap, forcing the BOJ to engage in emergency bond purchases to bring the rate back down.

The BOJ has announced plans to buy more government bonds as Japan's inflation is expected to reach a new 41-year high in December. The central bank also announced plans to purchase approximately 9 trillion yen (approximately $68 billion) in Japanese government bonds per month from January to March 2023. The Japanese government allegedly intervened in currency markets twice in late October to shore up the yen, sparking speculation in mid-September.

The outcome of the BOJ's two-day meeting this week will be determined by whether the board considers the market distortions to be severe enough to warrant additional action. Investors have been closely following the race for the next Governor of the Bank of Japan, looking for clues about possible policy shifts following the retirement of current Governor Haruhiko Kuroda, who has overseen massive monetary stimulus using unconventional methods since 2013. According to a Reuters poll of economists, 97% believe the Bank of Japan will maintain its ultra-easy policy at the two-day meeting that concludes on Wednesday, with 67% naming Bank of Japan Deputy Governor Masayoshi Amamiya as the most likely candidate to become the next BOJ governor.