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The Bank of Japan (BoJ) early on Wednesday opted to keep its negative interest rates unchanged but instead announced a set of new measures to extend quantitative easing and expand its monetary base for the “long run.” These measures include the purchase of 10-year government bonds (JGBs) to target a yield of 0%. To some, this announcement served as an unspoken acknowledgement that the BoJ had, as long suspected, begun to approach its limits of effective monetary policy action. The Japanese yen at first fell on the news, but then surged sharply against other major currencies, including the US dollar, ahead of the potentially pivotal Fed meeting later in the day.

As for the heavily-anticipated Fed statement due out at 2:00 PM today, not much has changed from the past several weeks in terms of the very low expectations for a rate hike. If anything, the BoJ announcement of new easing measures could even further discourage a Fed move, but as it already stands, there are very few market participants that are betting on such a move to higher interest rates, at least for this particular Fed meeting. Key Fed speakers and major US economic data releases have alternately shifted the discussion from one side to another in the past few weeks. Some members advocated a rate hike this year, even citing the possibility of one occurring in September, while others, like Fed Governor Lael Brainard, cautioned against raising interest rates too quickly.

Additionally, September has thus far seen a general deterioration of US economic data in the form of substantially worse-than-expected releases regarding employment (NFP), both the manufacturing and services industries (PMI), retail sales, and housing, that were all significantly worse than expected. The one potentially brighter spot for the Fed was the Consumer Price Index (CPI) inflation reading for August, which showed that both headline and core prices increased by more than expected. Despite this more buoyant view of inflation, however, it is still unlikely to be enough to sway the Fed into action today.

Amidst all of these economic data releases and Fed member speeches, the market’s view of the implied probability of a rate hike today has continued to hover in the low-to-high teens. Of course, there could always be a surprise move, but the much more likely scenario will be a characteristically unmovable Fed. Therefore, the market’s focus, as has consistently been the case from the beginning of the year, will be concentrated on the words emanating from the Fed statement as it relates to the indication of a possible rate hike in December and the potential pace of tightening going forward. The current market probability of a December hike remains around 60%.

The key markets to watch today, as always, will be US equity markets, gold, and the US dollar, particularly USD/JPY due the earlier BoJ announcement. A more hawkish Fed today could lead to a rebound for USD/JPY, while a more dovish statement could lead to a further drop for USD/JPY towards the key 100.00 mark and below.