FXStreet (Mumbai) - USD/JPY has halted its corrective slide from 1-week highs and now appears to consolidate around 122.50, in a 15-pips tight range as markets turn cautious heading into the Bank of Japan (BOJ) monetary policy decision due expected to be out by 0300-0.430GMT today. The major spiked to fresh weekly highs to 122 in the US last session on the back of a strong rally in the US dollar against it major competitors, led by Wednesday’s historic Fed rate hike and also after the Dots chart surprised markets by showing four rate hikes next year are in place. Attention now shifts towards the BOJ policy decision due later this session; with markets usually assuming that longer it takes for the announcement, the more likely the central is to introduce some changes to the policy. While the central bank head Kuroda will speak at the press conference at 0630GMT. BOJ to sit tight after the Fed lift-off Earlier this week, the Fed finally embarked upon the policy normalization path and hiked the target range for the Fed funds rate by 25bps. Hence, in wake of the Fed rate hike, markets are expecting the BOJ to hold-off any easing plans at today’s monetary policy announcement. The central bank is expected to maintain its pledge to increase the asset purchase program at an annual pace of 80 trillion yen. Since the last meeting, BOJ Kuroda has been very optimistic on the economic outlook, and the recent streak of Japan’s fundamentals also has been supportive of growth. The Japanese economy avoided a technical recession in Q3 while the manufacturing sector activity is seen improving with solid Tankan number and stronger machine orders data. However, the major concern bothering Mr. Kuroda is the inflation outlook, given the recent drop in oil prices and not so impressive wage price growth. So the BOJ statement or Kuroda at his presser may underscore the need for wages to pick-up along with capex, which may push price pressures towards the 2% price target expected to be achieved by H2 2016. The central bank is also polling companies nation-wide on their plans to raise wages as the BOJ remains concerned over whether firms will do their bit to spur growth by increasing pay. Views from BAML Analyst at BAML noted, “The Bank of Japan Monetary Policy Board (MPB) will meet on 17-18 December, and it will probably vote to continue the current monetary policy during this meeting. Since the last meeting in November, falling commodities prices have stoked some risk aversion here and there. But USD/JPY has traded at the ¥121-¥123 level, the tradeweighted daily JPY nominal effective exchange rate has been in the lower 90 range (BOJ, base date 5 January 1999 = 100), and the Nikkei Average has been above 19,000. These suggest financial conditions have not worsened considerably.” “Economic data have not only shown that consumption has been slow to recover (the October household survey), the December Tankan survey showed business sentiment more or less flat, albeit around a relatively high level. But on the other hand, Japan’s unemployment rate is the lowest since July 1995 (at 3.1%) as the labor market has tightened further. Also, record-high corporate profits appear to be boosting capital expenditures, with October capital goods shipments (excluding the transport sector) and machinery orders both expanding month-on-month for two straight months. Strong data have been mixed with weak.” USD/JPY key levels to monitor At 122.48, the USD/JPY pair finds the immediate resistance at 122.88 (Dec 17 High), beyond which 123/123.06 (round number/ Dec 9 High) could be tested. Bulls will completely take over control above the last, driving the price towards 123.47/50 (Dec 7 High/ psychological levels). Should the BOJ reiterate its upbeat tone on the economy and stand pat, we could see the prices falling further to test the immediate support placed at 122.23/22 (1h 50-SMA/ 50-DMA), below which 121.98/93 (200-DMA/ 1h 200-SMA) appears to be a strong support. Selling pressure will intensify below the last, drowning the pair to 121.76/67 (10-DMA/1h 100-SMA). For more information, read our latest forex news.