The Japanese yen strengthened on Monday. Specifically, it rose as markets anticipate a Bank of Japan (BOJ) rate hike this Friday. Moreover, this move comes during a packed week of central bank decisions and critical U.S. economic reports that could shape Federal Reserve policy.
The yen traded just below 155 per U.S. dollar—up 0.6%. This gain followed a BOJ survey showing most Japanese firms plan to raise wages in fiscal 2026 at a pace similar to this year. In addition, a separate report revealed that big manufacturers’ business sentiment hit a four-year high in the December quarter.
Given these developments, a rate hike now seems almost certain. As a result, the yen gains an advantage over the dollar. Meanwhile, the dollar faces growing pressure from bets on U.S. rate cuts early next year. Consequently, traders who borrowed cheap yen to buy high-yielding dollar assets—especially in tech—may now find those “carry trades” less profitable.
“Whether the yen continues to strengthen into year-end depends heavily on the BOJ’s updated guidance,” said Lee Hardman of MUFG. He added, “A deeper sell-off in U.S. AI or tech stocks could support the yen by disrupting favorable conditions for carry trades.”
Elsewhere, the Bank of England (BoE) and European Central Bank (ECB) also meet this week. Currently, markets nearly price in a BoE rate cut, as UK inflation shows signs of cooling. However, the ECB is expected to hold rates steady—though some traders now speculate it could hike in 2026.
Sterling held steady at $1.33865. At the same time, the euro traded flat at $1.1737. “The BoE decision will be very close,” said Joseph Capurso of Commonwealth Bank of Australia. He noted, “Tuesday’s wage data and Wednesday’s inflation report could reduce expectations for further cuts—if the numbers come in hot.”
Meanwhile, delayed U.S. data—halted by the recent government shutdown—will finally release this week. First, the November jobs report arrives Tuesday. Then, inflation figures follow on Thursday. Although the data is somewhat outdated, investors consider it essential for assessing U.S. economic health.
“This data contains noise from the shutdown,” explained Sim Moh Siong of Bank of Singapore. He emphasized, “Policymakers will interpret it more carefully than usual. The main goal is to identify the underlying trend in the U.S. labor market.”
Last week, a divided Fed cut rates but signaled a pause in further easing. In particular, Chair Jerome Powell stressed the need for more economic clarity. Adding to uncertainty, President Donald Trump said he is leaning toward Kevin Warsh or Kevin Hassett to lead the Fed next year.
In Asia, China reported its weakest factory output and retail sales growth in over a year for November. This complicates efforts to revive its $19 trillion economy. Nevertheless, the onshore yuan strengthened to a one-year high of 7.047 per dollar. By contrast, the Australian dollar—a common proxy for yuan sentiment—dipped 0.1% to $0.665.
Looking ahead, the yen strengthens ahead of BOJ rate hike expectations. Indeed, sustained support comes from rising wages, strong corporate confidence, and shifting global flows. If these trends continue—and especially if U.S. tech stocks fall or data weakens the dollar—the yen could gain further ground in the coming days.
READ: Consumer Brands in China Navigate Tough Future Amid Deflationary Pressures
