Tokyo/New York, December 1, 2025 – The Japanese yen rose on Monday, bolstered by comments from Bank of Japan (BOJ) Governor Kazuo Ueda, who signaled the possibility of a near-term rate hike. Meanwhile, the U.S. dollar started the month on the back foot, as investors ramped up expectations of a Federal Reserve rate cut this month.

Ueda provided a more upbeat outlook on Japan's economy and said the BOJ would weigh the "pros and cons" of raising interest rates at its December policy meeting. Market participants interpreted his remarks as hawkish, sending the USD/JPY pair down 0.4% to a session high of 155.49.

"It seems to be game-prep ahead of a potential rate hike, making a hike at the December or January meeting highly plausible," said OCBC currency strategist Christopher Wong. "But the question is if this is one hike and another long wait. A yen recovery would likely need the BOJ to follow through with stronger guidance."

Traders have been pricing in a higher likelihood of a BOJ rate hike this month, following the yen’s recent slide of 1.4% in November. Japanese Finance Minister Satsuki Katayama added that recent erratic swings in the foreign exchange market and the rapid yen weakening were “clearly not driven by fundamentals.”

In the broader currency market, the U.S. dollar eased as investors prepared for a pivotal month that could bring the Fed's final rate cut of the year and the confirmation of a dovish successor to Chair Jerome Powell.

The euro was up 0.04% at $1.1605, while sterling last traded at $1.3239, following its best week in over three months after the UK budget announcement. Against a basket of currencies, the Bloomberg Dollar Spot Index (DXY) fell 0.05% to 99.39, having lost 0.7% last week.

Traders are now pricing in an 87% probability of a 25 basis-point Fed cut next week, according to the CME FedWatch Tool. Reports that White House economic adviser Kevin Hassett is the frontrunner to become the next Fed chair have further weighed on the dollar. U.S. Treasury Secretary Scott Bessent indicated the announcement could come before Christmas.

"With December FOMC now closer to fully pricing a 25bp cut, we think the market will increasingly focus on subsequent meetings," said economists at Goldman Sachs. "Division on the committee is restraining more dovish pricing, but with labor market data due before the January meeting, too little is priced in Q1."

The foreign exchange market returned to normal on Monday after last week’s hours-long outage at CME Group, which disrupted trading across stocks, bonds, commodities, and currencies.

Elsewhere in Asia-Pacific currencies, the Australian dollar rose 0.08% to $0.6553, while the New Zealand dollar was little changed at $0.5738.