Japanese Yen and Aussie Dollar Forecast: Trade and Fed Chair Powell to Drive Trends

Japan PMIs to Reflect Tariff Impact on Services

Japan’s finalized Jibun Bank Services PMI could reveal the early impact of US tariffs, putting the spotlight on USD/JPY and the Bank of Japan. The preliminary report showed the Services PMI increased from 50 in March to 52.2 in April.

Given the services sector accounts for around 70% of Japan’s GDP, a higher reading could ease fears of a softer economy and revive bets on a Q3 2025 BoJ rate cut. Conversely, a weaker print would align with the BoJ’s lower GDP growth forecasts, easing bets on a rate hike.

Beyond the data, trade developments remain crucial for USD/JPY trends. On May 4, China, Japan, South Korea, and ASEAN member countries issued a joint statement opposing escalating trade protectionism, referring to US tariff policies. The alliance also pledged to strengthen regional trade ties to reduce US exposure. Any US retaliation may prompt further tariffs, adding volatility to USD/JPY.

USD/JPY: Key Scenarios to Watch

• Bullish Yen Scenario: Escalating trade tensions, upbeat Services PMI, or hawkish BoJ guidance may push USD/JPY lower toward the 140.309 support.
• Bearish Yen Scenario: De-escalating trade tensions, a lower Services PMI, or a dovish BoJ stance could drive the pair toward the May 2 high of 145.923.

USD/JPY Daily Outlook: Focus Shifts to the Fed

In today’s US session, the FOMC interest rate decision and Powell’s press conference will be key. Markets expect the Fed to maintain interest rates at 4.5%.

Unless there is a surprise Fed rate cut, Fed Chair Powell’s press conference will be the event of the day. Concerns about tariff-driven inflation could signal a less dovish stance, potentially sending USD/JPY toward 145. Conversely, support for multiple rate cuts to bolster the economy could drag the USD/JPY pair toward the 140.309 support level.

Don’t miss today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD in Focus: China Trade in Focus

Across the Pacific, the AUD/USD will respond to US-China trade developments.

Progress in negotiations may soften tariff concerns and boost demand, supporting the Aussie. With China absorbing one-third of Australia’s exports, rising Chinese demand could improve the outlook for the trade-driven Aussie economy. However, stalled talks may shift focus to Chinese stimulus. Fresh stimulus targeting domestic demand and consumption may also bolster Aussie dollar demand.

Nevertheless, while stimulus may boost sentiment, a resolution to trade tensions could deliver a stronger and more sustained rally.

Recent inflation data fueled speculation about a May rate cut and four additional reductions by year-end. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on the RBA’s policy outlook:

“Aust Melb Institute Inflation Gauge for Apr ticked up to 3.3%yoy possibly reflecting the roll off of electricity rebates. Trimmed mean inflation also ticked up but remains ~2%yoy & points to more downside for the ABS qtrly trimmed mean which fell to 2.9%yoy in the Mar qtr.”

According to Oliver, markets now price in a full May rate cut and over four cuts by year-end. A trade deal and stronger demand outlook could reduce the need for aggressive easing, boosting the Aussie dollar. Notably, US dollar weakness has impacted recent AUD/USD trends, overshadowing the influence of a dovish RBA policy outlook.

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Rising US-China trade tensions, Beijing’s silence on stimulus, or dovish RBA signals may send AUD/USD below the 200-day EMA toward the $0.63623 support level.
• Bullish Aussie dollar Scenario: Easing US-China trade friction, Beijing stimulus, or hawkish RBA signals could push the pair above the $0.65 mark.

Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.

Aussie Dollar Daily Outlook: Will the Fed Trigger an AUD/USD Breakout

In the US session, Fed Chair Powell will take the spotlight. If the Fed holds rates at 4.5% and calls for policy status quo on tariff uncertainty, the rate differential could widen. Fading bets on multiple Fed rate cuts may send the AUD/USD pair below the 200-day EMA toward the $0.63623 support level.

However, a dovish policy outlook may narrow the rate differential, potentially driving the pair above $0.65.

Key Market Drivers to Watch Today:

• USD/JPY: Japan trade developments, Japan Services PMI, and BoJ commentary.
• USD/JPY and AUD/USD: Fed decision, Powell’s press conference, and global trade headlines.
• AUD/USD: RBA outlook and China stimulus outlook.

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