The Japanese yen recorded notable gains at the start of the week, supported by growing anticipation of a busy period of monetary policy decisions from major central banks, alongside upcoming U.S. data that could reshape expectations for the Federal Reserve as the new year begins. The yen’s advance followed signals from the Bank of Japan that reinforced expectations of further policy tightening, at a time when markets are increasingly sensitive to any shift in central bank rhetoric.
Data from the Bank of Japan showed that the majority of companies expect wage increases to continue into fiscal year 2026 at a pace similar to the current year, strengthening bets on a potential rate hike. Reports indicating that the BOJ is preparing to begin reducing its holdings of exchange-traded funds as early as January also lent support to the currency, along with improved sentiment among large industrial firms, which reached its highest level in four years.
Although markets have largely priced in the likelihood of a rate hike at the upcoming meeting, attention will be focused primarily on comments from BOJ Governor Kazuo Ueda for clearer guidance on the future path of tightening. Even so, a broader and more sustained recovery in the yen remains dependent on additional factors, including fiscal discipline by the government and continued pressure on the U.S. dollar.
Meanwhile, the New Zealand dollar weakened after the central bank governor pushed back against expectations of rate hikes next year. Market attention is also turning to upcoming meetings of the Bank of England and the European Central Bank. Investors appear increasingly confident of a potential rate cut in the UK as inflation shows signs of easing, while the ECB is expected to maintain a cautious, wait-and-see stance, despite longer-term speculation about a possible rate hike in 2026.
In the United States, markets are awaiting the release of a series of economic indicators that were delayed due to the government shutdown, most notably employment and inflation data. These releases are expected to provide a clearer picture of labor market trends and price pressures. While the data may contain some distortions, it will remain critical in assessing the outlook for monetary policy, especially after the Federal Reserve’s recent rate cut and its signal that further moves will require more compelling economic evidence.
Across Asia, Chinese data added further pressure to the broader outlook, showing a marked slowdown in industrial output and retail sales growth in November, underscoring ongoing challenges facing the world’s second-largest economy. While the Australian dollar weakened in response to these figures, the Chinese yuan continued to strengthen, reaching its highest level in more than a year, highlighting the divergence in Asian currency performance amid varying domestic and global factors.
Stay informed about global markets through our previous analyses. and Now, you can also benefit from LDN company services via the LDN Global Markets trading platform.
