The Japanese yen strengthened on Monday as investors prepared for a pivotal week featuring interest rate decisions from major central banks and key U.S. economic data that could shape the Federal Reserve’s policy outlook in the year ahead.
The yen was last trading 0.5% higher at 155.08 per dollar, extending earlier gains after the Bank of Japan said most Japanese firms surveyed expect wage increases in fiscal 2026 to broadly match the pace seen this year. The data reinforced expectations that rising wages could support tighter monetary policy.
Adding to market focus, a Bloomberg News report said the BOJ could begin selling its exchange-traded fund holdings as early as January. Earlier in the session, a closely watched business survey also showed sentiment among large Japanese manufacturers reached a four-year high in the three months through December.
According to Christopher Wong, a currency strategist at OCBC, the latest figures strengthened expectations for a BOJ rate hike, although markets are already pricing in a move later this week. He noted that investors will be closely watching guidance from BOJ Governor Kazuo Ueda for signals on the pace of future policy tightening.
Wong added that a sustained recovery in the yen would likely require not only stronger BOJ guidance, but also greater fiscal discipline from policymakers and continued softness in the U.S. dollar.
Elsewhere, the New Zealand dollar underperformed regional peers after the country’s central bank pushed back against expectations for interest rate hikes next year. The kiwi was last down 0.36% at $0.5781.
Attention is also on upcoming policy decisions from the Bank of England and the European Central Bank. Markets have largely priced in a rate cut by the BoE as U.K. inflation shows signs of cooling, while the ECB is expected to keep rates unchanged. Some traders are already speculating that an ECB rate hike could come as early as 2026.
Sterling slipped 0.13% to $1.3364, while the euro edged 0.06% lower to $1.1733. Joseph Capurso, a currency strategist at Commonwealth Bank of Australia, said the BoE decision appears finely balanced, warning that fresh inflation data could alter expectations for follow-up cuts. U.K. inflation figures are due on Wednesday.
Key U.S. data in focus
In the United States, a wave of delayed economic data is set for release following the recent government shutdown, offering investors long-awaited insight into the health of the world’s largest economy. The November jobs report is due on Tuesday, followed by inflation data on Thursday.
The U.S. dollar index hovered near a two-month low reached last week, standing at 98.37. Sim Moh Siong, a currency strategist at Bank of Singapore, cautioned that the upcoming data may be noisy due to timing and shutdown-related distortions, meaning policymakers are likely to interpret the results with extra care. He said the key focus will be underlying trends in the U.S. labor market.
The Federal Reserve cut interest rates last week, but Chair Jerome Powell signaled that further easing is unlikely in the near term as officials wait for clearer economic signals. Meanwhile, U.S. President Donald Trump said he is considering either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the central bank next year.
In Asia, fresh data showed China’s factory output and retail sales grew at their slowest pace in more than a year in November, adding to pressure on policymakers seeking to support the $19 trillion economy. The Australian dollar, often viewed as a proxy for the yuan, slipped 0.17% to $0.6643, while the onshore yuan strengthened to a more than one-year high of 7.0497 per dollar.
