Such a policy shift would highlight the central bank's commitment to gradually raise interest rates from the current 0.25% towards approximately 1%, a threshold analysts believe will neither hinder nor excessively stimulate Japan's economy.
During the two-day meeting concluding on Friday, the BOJ is expected to adjust its short-term policy rate to 0.5%, unless Trump's inaugural address and executive actions create turmoil in financial markets, according to sources cited by Reuters.
Additionally, in its quarterly outlook report, the board is likely to revise its price forecasts upward, reflecting the increasing likelihood that rising wages will help Japan consistently achieve the bank's 2% inflation target.
If the BOJ proceeds with a rate hike, it would mark the first increase since July of the previous year, which had caught traders off guard and led to a significant downturn in global markets in early August, largely due to disappointing U.S. employment data.
To prevent a similar situation from occurring, the BOJ has strategically communicated its intentions, with clear indications from Governor Kazuo Ueda and his deputy last week that a rate increase was forthcoming. This communication has led to a rebound in the yen, as markets now estimate an approximately 80% probability of a rate hike on Friday.
There were also indications of potential action in the previous month. Although the BOJ opted not to raise rates during the December 18-19 meeting, board member Naoki Tamura advocated for an increase, and other members acknowledged that conditions were aligning for a possible hike, as revealed in the meeting minutes.
With a tightening of policy this week viewed as highly likely, market focus is now shifting to Ueda's post-meeting briefing for insights regarding the timing and pace of future rate increases. Given that inflation has surpassed the BOJ's 2% target for nearly three years and the weak yen has kept import costs high, Ueda is expected to emphasize the determination of policymakers to persist in raising interest rates.
"Japan had a permanently low growth rate, inflation rate and lower level of interest rates. So policymakers, investors and the business community still ask - have we really broken free from that?," said Jeffrey Young, chief executive officer of DeepMacro.
"The BOJ is going to have to explain very carefully that they're raising rates to move away from the extraordinary policy that they adopted."