A look at the day ahead in European and global markets from Tom Westbrook

Nine of the G10 central banks are expected to cut interest rates next year. Not Japan.

Bank of Japan Governor Kazuo Ueda's open discussion of a difficult policy year ahead and of possible paths out of negative interest rates has jolted short sellers out of the yen, afraid that the long-awaited yen rally may have begun.

The yen is up four weeks in a row for the first time since March. It steadied in Tokyo trade on Friday, perhaps since data showed the economy slowed more sharply than first thought in the third quarter, which makes the next policy steps more complicated.

Japanese government bonds have been heavily sold, tugging global yields higher. The Nikkei dropped to a one-month low.

The consequences of above-zero rates in Japan, and particularly the possibility the BOJ will be hiking while the rest of the world is cutting, could be huge since it may trigger an unwinding of carry trades and a rearrangement of the flow of Japanese capital.

The BOJ next meets on Dec. 19. Before then the ECB, Bank of England and Fed will all meet, with markets expecting rates to stay on hold. U.S. non-farm payrolls figures due later on Friday round out the week and will set the tone for the policymakers.

An upside surprise in the jobs numbers would probably generate the most turbulence in markets, since a handful of recent indicators - pointing to a cooling labour market and slowing inflation - were behind a powerful bond rally in anticipation of rate cuts.

The European calendar is fairly bare on Friday.

Elsewhere in Asia, India's central bank kept its key lending rate on hold, as expected. South Korea's National Pension Service and central bank are in talks to extend their foreign exchange swap programme, sources with direct knowledge of the matter told Reuters, and the won rose sharply.

Shares in Australian gas producer Santos rose 6% and Woodside (OTC:WOPEY) stock fell 0.5% after the companies confirmed speculation they were in preliminary merger talks.

Key developments that could influence markets on Friday:

Economics: Final German CPI, U.S. non-farm payrolls