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 Reserves 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 Japans 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 worlds 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 Chinas 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.