Bank of Japan Governor Kazuo Ueda will have investors on high alert Wednesday when he lays out a detailed plan for quantitative tightening after years of massive easing. He may also double down by adding an interest rate hike to boot.

While only about 30% of BOJ watchers predict a hike as their base-case scenarios, almost nobody is ruling out the possibility, according to a Bloomberg survey. The high degree of uncertainty has propelled the yen and Japanese stocks on a roller coaster ride that’s likely to continue until the decision and beyond.

Some BOJ officials are open to the idea of raising rates this month with inflation remaining broadly in line with forecasts, according to people familiar with the matter. Others see the central bank standing pat as an option while it awaits more data in hopes of seeing signs of resurgent consumer spending, the people said.

It all adds up to an unusually fraught meeting in which the governor may wind up setting the policy course by exerting his will. The outcome will reverberate across global markets, with the yen at an inflection point that may see it extend this month’s remarkable rebound, or slump back to multi-decade lows.

The US Federal Reserve meets just hours after the BOJ, with its signaling on US rates having the potential to greatly amplify market moves that begin during Asian trading, or send them into rapid reverse.

“It’s a tough call for the BOJ,” said Ko Nakayama, a former BOJ official who is now chief economist at Okasan Securities. “A rate hike would make the BOJ’s strong desire to normalize policy clear, with authorities taking action when there is no need to rush.”

Swaps markets pricing early Monday suggested about a 50% likelihood of a 15 basis points rate hike by July 31, up from 25% a week ago.

Another key event at this gathering will be the release of the first plan to reduce bond buying. The bank will embark on the QT path after the massive monetary easing program that ran for more than a decade finally ended in March.

BOJ officials have no intention of surprising market participants with their bond-buying cuts, and they’re well aware of what is expected, according to the people. The consensus market view is that the monthly pace of bond buying will initially be trimmed to ¥5 trillion ($32 billion) from the current ¥6 trillion starting next month, before eventually being halved in two years.

BOJ watchers who don’t expect a rate hike this week often cite the announcement of the bond plan. An initial QT step and a rate hike in tandem could represent too much tightening for an economy that hasn’t shown much growth in the three quarters through March, they say.

The course of the yen after the BOJ decision is another primary factor that the bank will likely consider, especially following suspected currency interventions by the Ministry of Finance earlier this month.

The yen has been volatile, moving from a 38-year low to a two-month high in the space of a month as traders unwound positions focused on the rate gap between Japan and the US.

The yen’s sharp gains last week grew so pronounced that they dragged the yuan higher and hammered assets from Japanese stocks to gold and Bitcoin as investors reassess their leveraged bets.

It was trading at 153.57 per dollar around 10:30 a.m. in Tokyo on Monday morning, after touching 161.95 on July 3.

The recent appreciation reduces the need for the BOJ to correct the yen’s weakness. That makes this opportune timing for raising rates, as the bank can say the hike had nothing to do with foreign exchange rates, according to Daisuke Karakama, chief market economist at Mizuho Bank.

“A rate hike is likely at this meeting,” Karakama said. “It’s easier now. Otherwise, they could be back under pressure from a weak yen to act. This could be a key moment for the yen shifting from a massive weakening trend.”

BOJ watchers keenly recall when Ueda triggered a slide in the yen in April by appearing to show little concern over its weakness during his post-decision press conference. Not long afterwards, the yen surged in what was suspected to be yen-buying intervention by Japanese authorities. Even if there is no rate hike Wednesday, Ueda is expected to indicate the timing for another hike is getting nearer.

Toshimitsu Motegi, secretary general of ruling Liberal Democratic Party, and Taro Kono, digital minister, recently called for the BOJ to tighten policy to support the yen and cap inflation, highlighting their growing frustration over the yen’s role in driving up costs of living.

With inflation heavily weighing, support for Prime Minister Fumio Kishida’s cabinet has suffered. The cost of living has risen at a pace at or above the BOJ’s 2% target for 27 months, with wage growth lagging those gains throughout that period. Consumer spending has dropped every quarter in the 12 months through March.

It remains to be seen how those political calls might affect the BOJ’s decision. They could have the opposite effect of persuading the BOJ to wait this month in order to avoid the appearance of having been influenced by them, Okasan’s Nakayama said.

“What’s effective to the BOJ is asking behind the scenes,” Nakayama said. “Politicians must know that, and if they are very serious they would have done that, so I think those recent remarks were more for the sake of performance or a warning to markets to prevent the yen from falling.”

Ueda hasn’t spoken about monetary policy in public since mid-June, his longest stretch of silence before a policy gathering. The vacuum has made it harder for markets to get a read on the likely outcome of the meeting.

“There is a good chance the policy rate will be raised, depending on data and information over the economy, inflation and financial conditions,” Ueda said in parliament on June 18.

  - Bloomberg