The Japanese yen rose on Monday ahead of what is widely expected to be an interest rate hike in Japan later this week, as markets navigate a packed calendar of central bank decisions and key US economic data that could help shape the Federal Reserve’s near-term policy outlook.

The yen was last up about 0.6%, trading just below ¥155 per dollar, extending early gains after the Bank of Japan said most Japanese companies surveyed expect wage growth in fiscal year 2026 to be broadly in line with increases seen in the current fiscal year.

A separate, closely watched survey showed business sentiment among Japan’s major manufacturers rose to its highest level in four years in the three months through December.

A rate hike on Friday is seen as nearly certain, giving the yen an edge against the dollar, which could face pressure from expectations that US interest rates may be cut early next year. Currency traders who had borrowed yen to invest in higher-yielding dollar-denominated assets, such as US technology stocks, may now find those carry trade positions less attractive.

Lee Hardman, a currency strategist at MUFG, said continued yen strength into year-end would likely depend on updated guidance from the Bank of Japan alongside the rate hike decision, as well as external conditions. He added that a deeper sell-off in US technology and AI stocks could support the yen by disrupting favorable conditions for yen-funded carry trades.

Elsewhere, both the Bank of England and the European Central Bank are also set to decide monetary policy this week.

Markets are almost fully pricing in an interest rate cut by the Bank of England, as UK inflation has begun to show signs of easing, while expectations point to the ECB keeping rates unchanged. Traders have also started to speculate about the possibility of an ECB rate hike in 2026.

Sterling was steady at $1.33865, while the euro was little changed at $1.1737.

Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia, said the Bank of England decision would be particularly interesting. He noted the call would likely be finely balanced, adding that upcoming inflation data this week could trim some of the pricing for further rate cuts.

UK wage growth data is due on Tuesday, followed by consumer inflation figures on Wednesday.

Key US data ahead

A batch of delayed US economic data, postponed due to the government shutdown, is also due for release, offering investors a long-awaited snapshot of the world’s largest economy. The November jobs report is scheduled for Tuesday, with inflation data following on Thursday.

Sim Moh Siong, a currency strategist at Bank of Singapore, said the upcoming data is relatively dated and distorted by the shutdown, creating significant noise. He added that policymakers are likely to interpret the figures with greater caution than usual, focusing instead on the broader trend in the US labor market.

The Federal Reserve, which remains deeply divided, cut interest rates last week, though Chair Jerome Powell signaled that borrowing costs are unlikely to fall further in the near term until there is more clarity on economic conditions.

US President Donald Trump said on Friday he is leaning toward appointing either former Fed governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the central bank next year.

In Asia, data released on Monday showed China’s industrial output and retail sales grew at their slowest pace in more than a year in November, adding to the challenges facing policymakers as they seek new ways to sustain momentum in the $19 trillion economy.

The Australian dollar, often used as a liquid proxy for the yuan, slipped 0.1% to $0.665, while the onshore yuan strengthened to its highest level in more than a year at ¥7.047 per dollar.

Gold prices rose in the European market on Monday, maintaining gains for the fifth consecutive day and moving close to setting new two-month highs, supported by the weak performance of the US dollar against a basket of global currencies.

Markets are awaiting the release of key US labor market data on Tuesday, particularly the October jobs report, which was previously delayed due to the US government shutdown. The report is expected to provide strong clues about the future path of Federal Reserve monetary policy in 2026.

Price Overview

• Gold prices today: Gold rose by about 1.2% to $4,349.35, from an opening level of $4,299.39, and recorded a low at $4,295.84.

• At Friday’s settlement, gold prices gained 0.45%, marking a fourth consecutive daily advance, and hit a two-month high at $4,353.59 per ounce.

• The precious metal posted a weekly gain of 2.4% last week, its second weekly increase in the past three weeks, supported by the outcome of the Federal Reserve’s policy meeting.

US Dollar

The US dollar index fell by more than 0.1% on Monday, moving closer once again to its lowest levels in two months, reflecting the continued weakness of the US currency against a basket of global currencies.

As is well known, a weaker US dollar makes dollar-priced gold bullion more attractive to buyers holding other currencies.

The US dollar has remained under negative pressure since last week’s Federal Reserve meeting, after the outcome came less hawkish than markets had expected, reviving bets on the continuation of the federal rate-cutting cycle in 2026.

US Interest Rates

• The Federal Reserve cut interest rates by 25 basis points last week, bringing them to 3.75%, the lowest level since September 2022, marking the third consecutive cut in US interest rates.

• The decision was not unanimous, with 9 members voting in favor of the cut and 3 opposing it. Two members preferred keeping rates unchanged, while one member pushed for a larger 50-basis-point cut.

• According to CME’s FedWatch tool, pricing for keeping US interest rates unchanged at the January 2026 meeting stands at 76%, while the probability of a 25-basis-point cut is priced at 24%.

• Investors are currently pricing in two US rate cuts over the course of next year, while Federal Reserve projections point to only one 25-basis-point cut.

• To reassess these expectations, investors are closely monitoring further US economic data releases, along with comments from Federal Reserve officials.

• The US October jobs report is due on Tuesday, and is expected to provide strong evidence on the pace of growth in the world’s largest economy during the fourth quarter, which was heavily affected by the longest government shutdown in US history.

Gold Outlook

Market analyst for the Asia-Pacific region at OANDA, Kelvin Wong, said demand for gold is likely to remain strong ahead of the US nonfarm payrolls data.

Wong added that signs of weakness in the US labor market would keep short-term bond yields capped and further weaken the dollar, supporting gold’s rise toward the $4,380–$4,440 range after a strong rebound from the $4,243 per ounce support zone.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, increased by 2.29 metric tons on Friday, marking the second consecutive daily increase, bringing total holdings to 1,053.12 metric tons, the highest level since October 20.

The euro rose in the European market on Friday against a basket of global currencies, moving higher near a two-month high versus the US dollar, supported by the weak performance of the American currency, which remains under negative pressure following the Federal Reserve’s latest meeting.

The European Central Bank meets on Wednesday and Thursday this week, concluding its monetary policy meetings for 2025, with markets fully expecting European interest rates to be kept unchanged for the fourth consecutive meeting.

Price Overview

• Euro today: The euro rose 0.1% against the dollar to $1.1745, from an opening level of $1.1735, and recorded a low at $1.1728.

• The euro ended Friday’s trading unchanged against the dollar, after posting gains over two consecutive sessions, during which it reached a two-month high at $1.1763.

• The euro gained 0.85% against the dollar last week, marking its third consecutive weekly advance, supported by the narrowing interest rate gap between Europe and the United States, as well as hopes for a potential peace agreement between Russia and Ukraine.

US Dollar

The US dollar index fell by about 0.1% on Monday, moving closer once again to its lowest levels in two months, reflecting the continued weakness of the American currency against a basket of global currencies.

The US dollar has remained under negative pressure since last week’s Federal Reserve meeting, after the outcome came less hawkish than markets had expected, reviving bets on the continuation of the federal rate-cutting cycle through 2026.

European Central Bank

• The European Central Bank meets on Wednesday and Thursday to assess the appropriate monetary policy in light of recent economic developments across the euro area.

• The bank is widely expected to keep European interest rates unchanged at 2.15%, the lowest level since October 2022, for the fourth meeting in a row.

• Markets are awaiting further signals regarding the likelihood of the European Central Bank resuming its monetary easing cycle and cutting interest rates during 2026.

• ECB President Christine Lagarde praised the recent improvement in economic activity across the euro area last week, and hinted at the possibility of upgrading economic growth forecasts at this week’s meeting.

Interest Rate Gap

Following the Federal Reserve’s decision last week, the interest rate gap between Europe and the United States narrowed to 160 basis points in favor of US rates, the smallest gap since May 2022, which supports further gains in the euro against the US dollar.

The Japanese yen rose in the Asian market on Monday against a basket of major and minor currencies, resuming gains that were temporarily halted on Friday versus the US dollar, supported by the weak performance of the American currency, which is trading near low levels following the Federal Reserve meeting.

The yen began the week in positive territory, supported by increased buying interest ahead of the Bank of Japan meeting on Thursday and Friday, where markets widely expect a 25 basis point interest rate hike, marking the second monetary tightening move this year.

Price Overview

• Japanese yen today: The dollar declined against the yen by 0.4% to ¥155.18, from today’s opening level of ¥155.80, and recorded a high at ¥155.99.

• The yen ended Friday’s trading down 0.15% against the dollar, marking the first daily loss in the past three days, amid consolidation and as the decline in the US currency paused.

US Dollar

The US dollar index fell by about 0.1% on Monday, moving back toward its lowest levels in two months, reflecting the continued weakness of the American currency against a basket of global currencies.

The US dollar has remained under negative pressure since last week’s Federal Reserve meeting, after the outcome came less hawkish than markets had expected, reviving bets on the continuation of the federal rate-cutting cycle through 2026.

Bank of Japan

The Bank of Japan meets on Thursday and Friday this week, amid strong expectations of a 25 basis point interest rate hike to a range of 0.75%, the highest level since 2008 during the global financial crisis.

Markets are closely watching what Governor Kazuo Ueda will say about the direction of monetary policy in 2026, at a time when expectations are rising that the Japanese government may resort to additional fiscal expansion, adding further complexity to the policy outlook for the Bank of Japan.

Japanese Interest Rates

• Following recent inflation and wage data in Japan, pricing for the probability of a quarter-point interest rate hike by the Bank of Japan at the December meeting has stabilized above 90%.

• Bank of Japan Governor Kazuo Ueda has presented more optimistic expectations for the Japanese economy in his latest remarks, stating that the central bank will assess the pros and cons of raising interest rates at its upcoming monetary policy meeting.

• Three government officials told Reuters that the Bank of Japan is likely to raise interest rates in December.

Views and Analysis

Analysts at Société Générale said they expect the Bank of Japan to raise interest rates to 1% by July next year, while also anticipating a rate hike when the bank announces its policy decision on Friday.

The analysts added that once rates reach 1%, the Bank of Japan will enter uncharted territory, making it more likely to adopt a cautious tightening pace through gradual 25 basis point increases, with close monitoring of the impact on economic growth and price levels. They expect at least nine months to a full year between each rate hike.