Japanese Yen and Aussie Dollar Forecasts: BoJ Uncertainty and China Data in Focus

Bank of Japan and Politics Set the Stage for the Yen

It could be a pivotal week for the USD/JPY as the Bank of Japan’s interest rate decision looms amid political uncertainty. Since exiting negative interest rates in March 2024, the BoJ raised rates in July 2024 and January 2025. The July 2024 decision proved pivotal. The BoJ cut JGB purchases and raised rates, triggering a yen carry trade unwind. The disruption halted further tightening until January 2025.

BoJ Governor Ueda and policymakers gave no prior indication of intent to lift rates, surprising the markets and sending USD/JPY crashing to a September 2024 low of 139.576. Notably, BoJ Governor Kazuo Ueda had to attend a special parliamentary session in August to justify the policy decision.

Fast forward to August 2025, recent guidance points to a likely hold on September 19. Governor Ueda has signaled hikes remain possible if economic conditions warrant. However, uncertainty has intensified about the Bank’s rate path through the fourth quarter.

Japanese Prime Minister Shigeru Ishiba’s resignation has added to the uncertainty. An election for a new PM will not take place until October 4, potentially leaving the BoJ in policy limbo.

Mixed sentiment toward the BoJ’s policy stance leaves USD/JPY vulnerable to policymaker rhetoric and political developments. Traders should track Liberal Democratic Party-related news and BoJ chatter for clues ahead of Friday’s monetary policy decision.

USD/JPY: Manufacturing Sector Takes the Spotlight Ahead of the Fed’s Policy Decision

Later Monday, the New York Empire State Manufacturing Index will draw interest amid shifting sentiment toward the Fed’s rate path through the fourth quarter. Economists forecast the Index to drop from 11.9 in August to 3 in September.

A sharper drop may fuel speculation about a US recession, given that the manufacturing sector contributes about 20% to the US GDP. Rising recession risks would support a more dovish Fed policy stance, potentially pushing USD/JPY toward the 50-day Exponential Moving Average (EMA). If breached, 146.5 would be the next key support level.

Conversely, a higher reading may dampen expectations of multiple rate cuts in the fourth quarter. A less dovish Fed rate path may drive USD/JPY toward the 200-day EMA. A sustained move through the 200-day EMA would bring the 149.358 resistance level into play.

USD/JPY Scenarios: Hawkish BoJ vs. Dovish Fed Risks

• Bearish USD/JPY Scenario: Hawkish BoJ rhetoric or weaker US manufacturing sector data could push USD/JPY toward 146.5.
• Bullish USD/JPY Scenario: Dovish BoJ chatter or stronger US data could drive the pair toward 149.358.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Beyond USD/JPY, Chinese data will play a critical role in influencing AUD/USD trends, with key implications for RBA policy expectations.

Chinese Economic Data Spotlights AUD/USD

Shifting focus to the AUD/USD pair, Chinese house prices, industrial production, retail sales, and unemployment figures will influence demand for the Aussie dollar.

A softer fall in house prices, a sharper rise in retail sales, a pickup in industrial production, and falling unemployment could signal a resilient Chinese economy.

Improving demand from China could boost the Aussie economy, given that China accounts for around one-third of Aussie exports. Aussie trade terms are crucial for the RBA, given that Australia has a trade-to-GDP ratio of over 50%.

Upbeat data could temper expectations of a November RBA rate cut, driving demand for the Aussie dollar.

On the other hand, softer data may signal weakening demand, fueling speculation about a November rate cut and further policy easing in early 2026. A more dovish RBA policy stance would weigh on the Aussie dollar.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weak Chinese data or dovish RBA rhetoric may push AUD/USD toward $0.66.
• Bullish AUD/USD Scenario: Strong Chinese data or hawkish RBA chatter could drive AUD/USD toward $0.67.

See our full AUD/USD analysis for detailed trends and trade setups.

Manufacturing Data to Affect AUD/USD Rate Differentials

While economists predict a November RBA rate cut, traders are betting on multiple Fed rate cuts, sending AUD/USD through the $0.66 level.

A larger-than-expected fall in the NY Empire State Manufacturing Index could boost expectations of aggressive Fed rate cuts. A more dovish Fed policy stance would narrow the interest rate differential in favor of the Aussie dollar. Under this scenario, AUD/USD could target $0.67.

However, a higher reading could reduce bets on multiple Fed rate cuts in the fourth quarter. A less dovish Fed rate path may widen the rate differential, dragging AUD/USD toward $0.66.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ chatter and Japanese politics.
• USD/JPY and AUD/USD: NY Empire State Manufacturing Index
• AUD/USD: Upcoming Chinese economic data and RBA commentary.

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