1. BOJ Expected to Adopt "Constructive Ambiguity" on Future Rate Hikes The Bank of Japan (BOJ) is anticipated to maintain a "constructive ambiguity" approach regarding future rate hikes. Governor Kazuo Ueda recently provided clearer signals on neutral rate estimates, currently assessed between 1% and 2.5%. With markets nearly fully pricing in a December rate hike from 0.5% to 0.75%, speculation suggests the BOJ may revise its neutral rate estimate upward to signal further tightening room.

Former BOJ officials, including ex-chief economist Seisaku Kameda, argue the central bank is unlikely to specify a precise neutral rate, preferring flexibility amid uncertainty. JPMorgan’s Ayako Fujita expects the BOJ to emphasize 1% as merely the lower bound while acknowledging uncertainty.

Caution prevails, as aggressive hawkish signals could trigger bond yield spikes and market turbulence. Meanwhile, Japan’s government has signaled no opposition to a December hike, with Economy Minister Minoru Kiuchi deferring to the BOJ’s judgment.

2. U.S. Consumer Spending Slows in September Amid High Prices U.S. consumer spending rose just 0.3% in September, reflecting weakened demand due to elevated living costs and a softening labor market. Inflation accelerated to an 18-month high, driven by tariffs. While services spending grew 0.4%, goods spending stagnated.

Real spending was flat, pointing to a sluggish Q4 start. The Atlanta Fed projects Q3 GDP growth at 3.5%, down from Q2’s 3.8%. Core PCE rose 0.2% MoM and 2.8% YoY, with markets pricing in an 87.2% chance of a Fed rate cut next week.

3. University of Michigan Consumer Sentiment: December 2025 Preliminary Data The preliminary December consumer sentiment index edged up 2.3 points, led by younger demographics. One-year inflation expectations fell to 4.1%, a 2025 low, while long-term expectations dipped to 3.2%. Labor market views remained pessimistic.

**Japan’s Economic Crosscurrents Test BOJ Policy Shift** October household spending plunged 3.0% YoY, contradicting market expectations and complicating the BOJ’s anticipated December rate hike. Analysts warn weak consumption may curb future tightening pace, risking yen depreciation.

Neutral rate communication is now key, with the BOJ likely to avoid precise figures. Government officials, including Finance Minister Satsuki Katayama, reaffirmed respect for BOJ independence.

**Market Watch: Nikkei Drops on BOJ Hike Expectations** Japan’s Nikkei 225 fell 1.05% as rate-sensitive stocks declined. Banks gained on net interest margin optimism. USD/JPY technicals suggest resistance at 156.15 and support at 153.65, with RSI indicating neutral momentum.

**Geopolitical Update** Russia-Ukraine negotiations face hurdles over territorial disputes, while Gaza truce talks focus on post-conflict security arrangements. Both conflicts hinge on major-power diplomacy.

**Technical Outlook for USD/JPY** Short-term resistance lies at 155.50, with a break potentially testing 156.00–156.15. Support at 154.90, if breached, may trigger a drop to 154.60–154.35. Market sentiment remains cautious amid BOJ policy uncertainty.