Yen gains ahead of BOJ decision in packed week for investors

A separate closely watched survey showed that big Japanese manufacturers’ business sentiment hit a four-year ⁠high in ‌the three months to December.

 The yen strengthened ‍on Monday ahead of a likely ‍Japanese rate rise in a week that is packed with central bank decisions and key U.S. data that could help shape the Federal Reserve’s ​near-term policy outlook.

The Japanese currency was last 0.5% stronger at 155.13 per dollar, extending gains earlier on Monday after the Bank of Japan said most of the Japanese companies it surveyed expected ⁠to raise wages in fiscal 2026 at about the same rate as in the current year.

A separate closely watched survey showed that big Japanese manufacturers’ business sentiment hit a four-year ⁠high in ‌the three months to December.

A rate rise on Friday is all but baked in, giving the yen an advantage over the dollar, which could be sapped by expectations of more U.S. rate cuts early next year. Currency dealers that had previously borrowed yen to buy higher-returning dollar-priced assets like ⁠tech stocks could find those positions, known as carry trades, look less profitable now.

“Whether the yen continues to strengthen heading into year-end is likely to depend more on the updated guidance from the BOJ alongside a rate hike and external conditions. A deeper sell-off for U.S. AI/tech stocks could provide support for the yen by disrupting favourable conditions for yen-funded carry trades,” Lee Hardman, a strategist for Japanese bank MUFG, said.

Elsewhere, the Bank of England (BoE) and the European Central Bank (ECB) also set ⁠monetary policy this week.

Markets have almost fully priced ​in a cut by the BoE, as UK inflation is finally showing some signs of easing, while expectations are for the ECB to leave rates unchanged.

Traders have begun speculating that a rate hike could ‍be on the cards for the ECB in 2026.

Sterling eased 0.1% to $1.3374, while the euro was largely unchanged at $1.1737.

“In terms of the BoE, I think it’s going to be very interesting. I think it’s going to ​be a finely balanced decision to cut,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia.

“The risk is that the inflation data that comes out this week may take out some of the pricing for follow-up rate cuts.” UK wage growth data is due on Tuesday and consumer inflation on Wednesday.

KEY US DATA ON DECK

A host of U.S. data delayed by the government shutdown is set to be released, giving investors a long-awaited view of the world’s largest economy, with the November jobs report due on Tuesday and inflation figures on Thursday.

“This upcoming data is somewhat dated as well, and also is affected by the government shutdown, so there’s a lot of noise in data,” said Sim Moh Siong, a currency strategist at Bank of Singapore.

“From policymakers’ perspective… this set of data, whatever the outcome is, they will probably interpret it more carefully than usual. The main thing you want to do is to tease out the trend in terms of the labour market in the U.S.”

A divided Fed cut rates last ⁠week, but Chair Jerome Powell signalled borrowing costs were unlikely to drop further in the near term as ‌policymakers await more economic clarity.

U.S. President Donald Trump said on Friday he was leaning towards either former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the central bank next year.

In Asia, data on Monday showed China’s factory output and retail sales grew at their weakest pace in more than a year in November, compounding ‌challenges for policymakers who ⁠are struggling to find fresh ways to keep the $19 trillion economy humming.

The Australian dollar, often used as a liquid proxy for the yuan, was down 0.1% to $0.6649, though the onshore ⁠yuan strengthened to a more than one-year high of 7.047 per dollar.

© ZAWYA