Japanese Yen and Aussie Dollar Forecasts: Aussie Inflation and the Fed to Trigger Volatility

Rate Decision Looms: Will the BoJ Signal Rate Hikes?

The Bank of Japan kicks off its two-day monetary policy meeting on Wednesday, July 30, spotlighting the USD/JPY. Speculation has intensified about whether the BoJ will resume its path to monetary policy normalization since the US and Japan reached a trade agreement.

While economists expect Japan’s central bank to keep interest rates at 0.5% on July 31, the uncertainty lies around the Bank’s upcoming economic projections. A less gloomy economic outlook and expectations for prices to move higher could potentially be the green light for a Q4 2025 rate hike. A more hawkish BoJ policy stance would drive demand for the Japanese Yen.

However, the BoJ could take a more conservative economic outlook given the 15% tariff and the potential impact on external demand. Yen appetite could wane further if the BoJ flags concerns about the effect of tariffs on the economy.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented:

“The BoJ is likely to find it premature to hike at the monetary policy meeting on July 31st. While the final tariff rates are lower than feared at 15%, the effective tariff rate in the US would be much higher than 3.3% in 2024. Lower exports to the US could reduce Japan’s GDP as much as -0.5%.”

On July 23, BoJ Deputy Director Shinichi Uchida hinted at further rate hikes, stating:

“Given that real interest rates are at significantly low levels […] the bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate.”

However, he added that the Bank would need to assess any impact of US tariffs on Japan’s economy and inflation, suggesting a near-term hold on rates. The USD/JPY pair has risen from 146.109 to 148.809 since the Deputy Governor’s comments.

USD/JPY Daily Outlook: US Data and the Fed in Focus

Later in the session on Wednesday, crucial economic data, the Fed’s interest rate decision, and Fed Chair Powell’s press conference will trigger USD/JPY volatility.

Key stats include Q2 GDP and ADP employment change numbers for July. Economists forecast the US economy expanded by 2.4% quarter-on-quarter in Q2 after the first quarter’s 0.5% contraction. Additionally, economists expect ADP employment change to rise 78k in July, recovering from June’s 33k decline.

Better-than-expected numbers would signal a robust US economy and resilient labor market, supporting a less dovish Fed rate path. Conversely, softer readings may raise bets on a September Fed rate cut, weighing on US dollar demand A weaker dollar would bring the 200-day EMA into play, while a more hawkish Fed stance may send USD/JPY toward the 149.358 resistance level.

While the stats will influence dollar demand, the Fed’s interest rate decision, accompanying statement, and Powell’s press conference will be the key drivers. A hawkish hold would likely fuel US dollar demand, while support for multiple 2025 rate cuts could trigger a US dollar sell-off. A more dovish Fed rate path could push USD/JPY to the 200-day EMA and possibly test the 50-day EMA.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: hawkish BoJ signals, weaker US data, a dovish Fed policy stance. Such factors could send USD/JPY toward the 200-day EMA and expose the 50-day EMA.
• Bullish USD/JPY Scenario: Dovish BoJ cues, strong US data, a hawkish Fed press conference. These may drive the pair toward the 149.358 resistance level and the 150 level.

See today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD: Aussie Inflation to Spotlight the RBA

Turning to the AUD/USD pair, Australia’s crucial quarterly inflation report will fuel speculation about the RBA’s policy stance. Economists forecast the RBA Trimmed Mean CPI to rise 2.7% year-on-year in Q2, down from 2.9% in Q1.

A softer reading, toward the middle of the RBA’s 2-3% target range, could cement bets on an August RBA rate cut and two further policy moves in Q4 2025. A more dovish RBA policy stance would pressure the Aussie dollar and AUD/USD pair.

Conversely, a higher inflation reading could sink bets on an August rate cut, driving Aussie dollar demand.

This month, RBA Governor Michele Bullock underscored the significance of the quarterly inflation data, stating:

“If the quarterly CPI shows inflation falling toward the middle of the band over time, the RBA can cut interest rates in the next meeting.”

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Softer-than-expected Aussie inflation data, stalled US-China trade talks, or Beijing’s silence on stimulus. These factors could push AUD/USD toward the 50-day EMA, exposing sub-$0.65 levels.
• Bullish AUD/USD Scenario: A US-China trade deal, hotter Aussie inflation, or new stimulus measures from Beijing. These factors could send AUD/USD toward the $0.6550 level, bringing $0.66 into play.

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

AUD/USD Daily Outlook: Fed Policy Outlook and Rate Differentials

Later today, US economic data and the Fed’s policy outlook will influence US-Australian interest rate differentials and US dollar demand.

Better-than-expected data and a hawkish Fed policy outlook would widen the rate differential in favor of the US dollar, dragging AUD/USD toward the 50-day EMA. A drop below the 50-day EMA would expose $0.64500 and potentially the 200-day EMA.

On the other hand, weaker GDP and labor market data, and Fed hints at a September rate cut, could narrow the rate differential and send AUD/USD toward the $0.6550 level. A sustained move above $0.6550 may pave the way to the $0.66 level.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy guidance.
• USD/JPY and AUD/USD: US economic data, the Fed interest rate decision, and Fed Chair Powell’s press conference.
• AUD/USD: Aussie inflation, US-China trade talks, and Beijing’s stimulus moves.

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