Japanese Yen and Aussie Dollar Forecast: BoJ Rate Bets in Focus Amid Trade Deal Talks

Japan Trade Deal Spotlights the BoJ

It could be a pivotal week for global markets and the USD/JPY pair as speculation builds around a potential US-Japan trade deal. US tariffs on Japanese goods currently sit at 10% after President Trump lowered levies from 24% for 90 days to allow time for negotiations.

Fox Business Senior Correspondent Charles Gasparino reported:

“Trump Administration would like to roll out trade deals this week, at least the outlines that have been agreed upon, per sources close to the matter. Again, lots of moving targets that could delay matters as they had in the past but that, I am told, is the plan. Deals on deck: India. Japan and maybe South Korea and Australia. White House spox didn’t respond to a request for comment. Developing.”

While the 10% levy and the stronger Japanese Yen may impact demand for Japanese goods, the 24% tariff would have had a far more severe effect on Japan’s economy. Uncertainty over tariffs has tempered bets on a Bank of Japan rate hike. With a trade-to-GDP ratio of around 45% and the US accounting for 20% of Japan’s exports, Japan remains highly exposed to US demand trends.

However, if the US and Japan reach a deal this week, markets may revive bets on an H1 2025 Bank of Japan rate hike. Trade deals between the US and major economies could boost risk sentiment, initially weakening demand for the Yen.

Renewed expectations for multiple BoJ rate hikes could eventually support the Yen. Last week, Tokyo’s CPI Ex Food and Energy jumped to 2% year-on-year in April, up from 1.1% in March, meeting the BoJ’s 2% target. A de-escalation of trade tensions, rising inflation, and momentum in Japan’s economy would likely trigger a policy move.

Reuters Poll Highlights Trade Impact on BoJ Sentiment

A recent Reuters poll revealed a significant shift in sentiment toward the BoJ rate path:

• 47 of 56 economists predict the BoJ will hold rates at 0.5% in May and June 16-17. In contrast, in the March poll, 18 out of 61 economists forecast a rate hike in Q2 2025.
• 27 of 52 now expect a 25 basis-point rate hike in Q3 2025, down from 40 out of 57 in the March poll.
• Only 11 of 39 economists forecast a July rate hike compared with 26 out of 37 in March.
• Meanwhile, 9 predict the next BoJ hike in 2026 or beyond, up from zero in March.

USD/JPY: Key Scenarios to Watch

Safe-haven flows into the Yen could persist, weighing on USD/JPY if US-China trade tensions escalate. Conversely, a breakthrough in trade talks could support USD/JPY.

• Bullish Yen Scenario: Escalation in the US-China trade war, failed US-Japan trade negotiations, or hawkish BoJ guidance may push USD/JPY lower toward the 140.309 support.
• Bearish Yen Scenario: Easing US-China trade tensions, a US-Japan trade deal, or a dovish BoJ stance could send the pair toward 145.

USD/JPY Daily Outlook: US Manufacturing in Focus

Later in today’s US session, the Dallas Fed Manufacturing Index will provide insights into the demand environment. Economists forecast the Index to fall from -16.3 in March to -15 in April.

A stronger reading could signal rising demand for US goods, potentially boosting jobs, wages, and inflation. Higher inflation could support a more hawkish Fed stance. Falling bets on a June Fed rate cut may send the USD/JPY pair toward 145.

Conversely, a lower print may fuel US recession fears and Fed rate cut bets, pulling the pair toward 140.

Explore expert USD/JPY forecasts and setups in our latest analysis.

AUD/USD Forecast: Global Trade and the RBA

Meanwhile, the AUD/USD also faces pivotal drivers as global trade tensions evolve. A swift end to US tariffs on Australia and easing US-China trade tensions could be crucial. Australia has a trade-to-GDP ratio above 50%, with China accounting for one-third of Aussie exports. An extended global trade war and steep tariffs on China could undermine terms of trade, the Australian economy, and Aussie dollar demand.

The RBA could respond by cutting rates this month and signaling further policy easing to bolster the economy. Last week, the IMF cut Australia’s 2025 growth forecast from 2.1% to 1.6%. It lowered China’s growth forecast from 4.6% to 4%.

However, a US-Australia trade deal and progress toward a US-China deal could ease concerns over Australia’s economic outlook and lift demand for the Aussie dollar.

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Increasing US-China tensions or dovish RBA commentary may push AUD/USD below the $0.63623 support level.
• Bullish Aussie dollar Scenario: Easing US-China trade tensions or a hawkish RBA stance could drive the pair above the 200-day EMA.

For a comprehensive analysis of AUD/USD trends and trade data insights, see our top trading signals for AUD/USD amid tariff tensions here.

Aussie Dollar Daily Outlook: US Manufacturing in Focus

In the US session, upbeat US manufacturing sector data may ease recession fears. A less dovish Fed stance could widen the US-Aussie rate differential, potentially pulling AUD/USD toward $0.63.

Conversely, a weaker manufacturing report could drive Fed rate cut bets, potentially sending AUD/USD toward $0.65.

Key Market Drivers to Watch Today:

• USD/JPY: US-Japan trade headlines and BoJ policy sentiment.
• USD/JPY and AUD/USD: Dallas Fed Manufacturing Index and broader trade developments.
• AUD/USD: US-China trade headlines, RBA commentary, and Chinese stimulus measures, aiming to mitigating tariff risks.

For more in-depth analysis, review today’s USD/JPY and AUD/USD trading setups in our latest reports.