The yen slipped in choppy trading on Friday after the Bank of Japan delivered a widely expected interest rate hike, while Governor Kazuo Ueda offered limited guidance on the timing of future increases, even as he kept the door open to further monetary tightening.

The yen initially weakened against the dollar after the Bank of Japan raised its policy rate to 0.75% from 0.5%, a move that had been clearly signaled by policymakers, prompting traders to sell the currency on the news.

Losses in the Japanese currency deepened following Ueda’s post-meeting press conference, where he remained vague about the precise timing and pace of future rate hikes. In its latest trading, the yen was down 0.6% at 156.53 per dollar.

The euro climbed to a record high of 183.25 yen, while sterling rose 0.52% to 209.16 yen.

In a statement on Friday, the Bank of Japan maintained its view that core inflation will converge toward its 2% target in the second half of the three-year forecast period through fiscal year 2027.

However, two more hawkish board members, Hajime Takata and Naoki Tamura, dissented. Takata said core inflation had already reached the target, while Tamura argued it would do so earlier, around the middle of the three-year outlook period.

Bart Wakabayashi, head of Tokyo trading at State Street, commented on the Bank of Japan’s decision earlier on Friday, saying: “It feels like there is an ongoing debate, and the market reaction we’re seeing, in my view, is really about the Bank of Japan’s next steps… It doesn’t look like they have fully made up their minds about another hike.”

He added: “I think there is some consensus that 1% or 1.25% is roughly the neutral rate at this stage, but it appears the path for the Bank of Japan to get there will be a bit steeper.”

The Bank of Japan reiterated that real interest rates remain at “significantly low” levels even after the hike, and pledged to continue tightening if economic and inflation conditions evolve in line with its projections.

Euro steadies as Lagarde pushes back against hawkish pressure

Overnight, the dollar briefly weakened following a sharp and unexpected drop in US inflation, but investors questioned the reliability of the data due to disruptions caused by the US government shutdown, and the move quickly faded.

Sterling swung between gains and losses before settling at $1.3374, after the Bank of England cut interest rates to 3.75% as expected. However, the decision was passed by a narrower majority than markets had anticipated, potentially limiting the scope for further easing.

The euro was steady at $1.1719 in Asian trading, after European Central Bank President Christine Lagarde refrained from offering forward guidance and said all options remained on the table, a stance that markets interpreted as a pushback against more hawkish voices.

Analysts at ANZ said in a note to clients: “In recent weeks, hawkish comments from ECB executive board member Schnabel have shifted the market’s assessment of future policy risks. But the balanced tone suggests that Schnabel’s view that the next move is more likely to be a rate hike does not have broad support within the council.”

The ECB kept its policy rate unchanged at 2%, in line with expectations.

On the political front, European Union leaders agreed on Friday to borrow funds to finance Ukraine’s defense against Russia over the next two years, instead of using frozen Russian assets, sidestepping disagreements over an unprecedented plan to fund Kyiv with Russian sovereign money.

Norway and Sweden hold rates steady

The Norwegian krone slipped slightly to 10.18 per dollar after the central bank kept interest rates unchanged at 4% and signaled it was in no rush to cut them. The Swedish krona showed little reaction after rates were also left unchanged, as expected.

The Australian dollar fell 0.2% to $0.6601, while the New Zealand dollar declined 0.5% to $0.5748.

The Chinese yuan remained firm in onshore trading, hovering near a more-than-one-year high reached on Thursday. The dollar index rose 0.2% to 98.64.

Cryptocurrencies rebounded on Friday, with bitcoin up 2.5% at $87,752.22, while ether climbed more than 4% to $2,951.26.

Gold prices fell in European trading on Friday, extending losses for a second consecutive day and pulling back from a two-month high, amid corrective moves and profit-taking, in addition to pressure from the stronger US dollar against a basket of global currencies.

Despite a slowdown in US consumer price inflation that came in below expectations in November, markets are still ruling out an interest rate cut by the Federal Reserve at its January meeting.

Price overview

• Gold prices today: Gold declined by around 0.55% to $4,309.39, from the opening level of $4,332.72, and recorded a session high at $4,336.95.

• At Thursday’s settlement, gold prices lost about 0.15% due to corrective moves and profit-taking, after earlier touching a two-month high of $4,374.66 per ounce.

US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for the third consecutive session, reflecting continued strength in the US currency against a basket of major and secondary currencies.

Beyond buying from lower levels, the dollar is also benefiting from easing inflationary pressures at some global central banks, reinforcing expectations of continued monetary easing and interest rate cuts.

US interest rates

• US consumer prices rose by 2.7% year on year in November, below economists’ expectations of a 3.1% increase, after prices had risen by 3.0% in October.

• Following the data, and according to the CME FedWatch tool, pricing for keeping US interest rates unchanged at the January 2026 meeting eased from 75% to 73%, while pricing for a 25-basis-point rate cut rose from 25% to 27%.

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

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

Gold outlook

• Tim Waterer, chief market analyst at KCM Trade, said that the slowdown in US inflation has been a double-edged sword for gold and silver, as it justifies a more accommodative Federal Reserve stance, but also reduces their appeal as inflation hedges.

• Goldman Sachs said in a note on Thursday that it expects gold prices, in its base case, to rise by around 14% to $4,900 per ounce by December 2026, while also flagging upside risks to this forecast, driven by the potential expansion of diversification demand to include retail investors.

SPDR Gold Trust

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed ETF, were unchanged on Thursday, leaving total holdings steady at 1,052.54 metric tons.

The euro fell in European trading on Friday against a basket of global currencies, extending its losses for the fourth consecutive day against the US dollar, following the European Central Bank’s monetary policy meeting, whose outcome largely matched market expectations.

In its final meeting of 2025, the European Central Bank left interest rates unchanged for the fourth consecutive time, while raising its growth forecasts, suggesting that growth will be stronger than previously estimated, driven in particular by domestic demand.

Price overview

• Euro exchange rate today: The euro slipped by around 0.1% against the dollar to 1.715, from the opening level of 1.1723, and recorded a session high at 1.1729.

• On Thursday, the euro ended trading down 0.15% against the dollar, marking its third consecutive daily loss, amid ongoing corrective moves and profit-taking from a three-month high of 1.1804.

US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for the third session in a row, reflecting continued strength in the US currency against a basket of major and secondary currencies.

In addition to buying from lower levels, the dollar is benefiting from easing inflationary pressures on some global central banks, which supports expectations of continued monetary easing and further interest rate cuts.

European Central Bank

In line with expectations, the European Central Bank on Thursday kept its key interest rates unchanged at 2.15%, the lowest level since October 2022, marking the fourth consecutive meeting without a change.

The ECB reiterated its data-dependent, meeting-by-meeting approach without committing to a specific interest rate path, noting that current interest rate levels are appropriate given stable inflation and economic growth.

Christine Lagarde

ECB President Christine Lagarde said on Thursday that the bank remains in a “good position,” stressing that there is consensus within the Governing Council to keep all options open, including the possibility of raising interest rates if necessary.

Lagarde noted that the European economy is showing greater resilience than expected, with growth supported by domestic demand. She avoided directly addressing the possibility of rate hikes in 2026, but emphasized caution amid geopolitical and trade risks.

European interest rates

Money markets are currently pricing the probability of a 25-basis-point rate cut by the European Central Bank in February 2026 at less than 10%.

Views and analysis

Analysts at Barclays, led by Mariano Cena, said in a note to investors that the ECB meeting did not provide any new information that would change their view on the most likely path of monetary policy or the balance of risks surrounding it.

They added that they continue to expect the ECB to keep interest rates unchanged over the next two years, and see risks tilted toward rate cuts rather than hikes over their forecast horizon.

The Japanese yen fell in Asian trading on Friday against a basket of major and secondary currencies, resuming losses against the US dollar after a brief pause the previous day, and touching a one-week low, following the Bank of Japan’s widely expected decision to raise its benchmark interest rate.

Japan’s monetary policy committee voted unanimously to raise interest rates by 25 basis points to 0.75%, the highest level since September 1995. This marks the second rate hike in 2025, following an earlier increase in January.

The Bank of Japan said real interest rates are expected to remain low, prompting markets to await further clarification later in the day from Governor Kazuo Ueda on whether the central bank intends to continue raising rates next year.

Price overview

• Japanese yen today: The dollar rose against the yen by 0.45% to 156.18, the highest level since December 10, from an opening level of 155.46. The session low was recorded at 155.45.

• On Thursday, the yen ended trading up 0.1% against the dollar, following a 0.6% loss the previous day amid corrective moves and profit-taking from a two-week high near 154.39.

Bank of Japan

At the conclusion of its final monetary policy meeting of 2025, the Bank of Japan on Friday raised its benchmark interest rate by 25 basis points to 0.75%, the highest level since September 1995, in line with market expectations. This represents the second tightening move by the Japanese central bank this year.

The decision was approved unanimously by members of the monetary policy committee and reflects the continuation of Japan’s gradual normalization of monetary policy after decades of near-zero interest rates.

Policy updates

In its policy statement, the Bank of Japan said that based on recent data and surveys, there is a high likelihood that the mechanism of moderate and synchronized wage and inflation growth will continue.

The central bank added that given the extremely low level of real interest rates, it will continue to raise rates if its economic and price outlooks are realized.

The bank also noted that despite economic weakness, corporate profits are likely to remain strong, and companies are expected to continue raising wages through 2026.

It further stated that the moderate wage-price cycle is very likely to persist, and that the probability of underlying inflation reaching the 2% target is increasing.

Japanese interest rates

• Following the meeting, market pricing for another 25-basis-point rate hike by the Bank of Japan at its January meeting remained below 20%.

• Investors will continue to monitor upcoming data on inflation, unemployment, and wages in Japan to reassess these expectations.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda is scheduled to speak later today on the outcome of the policy meeting, with his remarks expected to provide stronger signals on the future path of monetary normalization and interest rate hikes through 2026.

Views and analysis

• Shigeto Nagai, head of Japan economics at Oxford Economics, said the bank is likely to raise its policy rate again around mid-2026, reaching a terminal level of 1% following this latest increase.

• Nagai defines the terminal or neutral interest rate as the level that balances inflation and economic growth, neither overheating the economy nor slowing it excessively.

• He warned that additional rate hikes by the Bank of Japan could generate political tension if inflation eases smoothly toward the 2% target in the first half of 2026.

• Norihiro Yamaguchi, chief Japan economist at Oxford Economics in Tokyo, said that while Governor Ueda is unlikely to discuss the neutral rate explicitly given the bank’s stance so far, he is expected to emphasize that further rate hikes may be needed to counter yen depreciation pressures. Otherwise, the yen could weaken further and bond yields could decline.