Japanese Yen and Aussie Dollar Forecasts: Fed Signals Drive USD/JPY and AUD/USD Trends

USD/JPY Traders Are on High Alert as Inflation Indicators Take Center Stage

Traders brace for a week that could redefine BoJ policy and USD/JPY volatility after the Bank of Japan’s surprise monetary policy decision on Friday. While the BoJ kept interest rates at 0.5%, two policymakers voted in favor of a rate hike, suggesting an imminent policy adjustment. The BoJ also declared it would begin disposing of its exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs).

September’s monetary policy decision sets the stage for a pivotal week, with Services PMI and Tokyo inflation data in focus.

East Asia Econ commented on the inflation outlook, following August’s national inflation figures, stating:

“I thought Japan’s inflation might be peaking, but relative to that expectation, the data in August were strong. Overall, core and core services might be picking up again.”

During the BoJ press conference, Governor Kazuo Ueda commented on inflation, stating that while underlying inflation was still below 2% it was approaching the Bank’s target. The BoJ Governor also noted that the Japanese economy was withstanding the impact of tariffs.

Previously, Governor Ueda had stated that interest rate hikes would continue if prices and the economy moved in line with projections.

Japan’s core inflation rate held steady at 1.6% year-on-year in August. With the potential threat of rising core service prices, Japan’s Services PMI will face intense scrutiny on Wednesday, September 24. Economists expect the S&P Global Services PMI to increase from 53.1 in August to 53.4 in September.

A pickup in services sector activity, higher employment, and rising prices may lift expectations for an October rate hike, boosting yen demand. However, softer prices may overshadow any upswing in sector activity and employment, weighing on the yen.

Will Tokyo inflation push the BoJ into action?

Wednesday’s PMI data precedes Tokyo’s inflation data due out Friday, September 26, another key indicator for national consumer price trends.

Beyond this week’s data, traders should closely monitor BoJ policy signals. BoJ board members TAKATA Hajime and TAMURA Naoki dissented from the rate decision on Friday. Hawkish rhetoric from other board members would raise the chances of an October rate hike. Governor UEDA, HIMINO Ryozo, UCHIDA Shinichi, NOGUCHI Asahi, NAKAGAWA Junko, KOEDA Junko, and MASU Kazuyuki voted to keep rates steady.

Fed Speakers in Focus: Market Impact on USD/JPY

Later Monday, traders should track FOMC members’ speeches for further clues on the potential timing of an interest rate cut. Fed Vice Chair John Williams and FOMC members Alberto Musalem, Stephen Miran, and Beth Hammack are on the calendar to speak.

Support for October and December rate cuts to bolster the labor market could push USD/JPY toward 145.

Conversely, calls to hold monetary policy until December may send the pair toward the 149.358 resistance level.

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

• Bearish USD/JPY Scenario: Hawkish BoJ or dovish Fed rhetoric could drag USD/JPY toward 145.
• Bullish USD/JPY Scenario: Dovish BoJ signals or hawkish Fed rhetoric could drive the pair toward 149.358.

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

The yen is not the only currency facing shifting potential monetary policy signals. Policy signals from the Fed and ongoing US-China trade developments are also influencing investor appetite for the Aussie dollar, making AUD/USD a key pair to watch.

The People’s Bank of China to Spotlight the Aussie Dollar

Shifting focus to the AUD/USD pair, the People’s Bank of China interest rate decision could influence price trends. Economists expect the PBoC to keep the one-year and five-year loan prime rates (LPRs) steady at 3% and 3.5%, respectively.

A surprise rate cut could boost demand for the Aussie dollar.

Why do AUD/USD traders need to track the PBoC’s policy decisions?

Lower interest rates could raise demand for credit and boost consumption. A pickup in domestic demand may improve Aussie trade terms, given that China accounts for roughly one-third of Australian exports.

With a trade-to-GDP ratio of over 50%, rising exports may lift the economy, potentially reducing bets on multiple RBA rate cuts. A less dovish RBA policy stance could boost appetite for the Aussie dollar.

On the other hand, the Aussie dollar could face selling pressure if the PBoC maintains interest rates. Domestic demand has waned in the third quarter, pressuring Beijing to introduce fresh stimulus. Weaker demand from China may support expectations of multiple RBA rate cuts to bolster the economy.

RBA Governor Michele Bullock previously commented on the effects of Beijing policies on the Aussie economy, stating:

“If China bolsters its economy with fiscal stimulus, that could cushion the impact of tariffs on Australia’s economy.”

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: PBoC policy hold, rising US-China trade tensions, or dovish RBA rhetoric may drag AUD/USD toward $0.655.
• Bullish AUD/USD Scenario: PBoC rate cut, progress toward a US-China trade deal, or hawkish RBA rhetoric could send AUD/USD toward $0.665.

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

Fed Signals and Rate Differentials

While economists expect a November RBA rate cut, traders have tempered bets on aggressive Fed rate cuts, sending AUD/USD below the $0.66 level.

Dovish Fed speakers may revive bets on two rate cuts in the fourth quarter. A more dovish Fed rate path could narrow the US-Australia rate differential, favoring the Aussie dollar. A narrower rate differential may send AUD/USD toward $0.665.

Conversely, hawkish chatter, favoring the delaying of rate cuts over inflation concerns, could widen the rate differential in favor of the greenback. A wider rate differential may drag AUD/USD toward $0.655. If breached, $0.65 would be the next key support level.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ signals and Japanese politics.
• USD/JPY and AUD/USD: Fed commentary.
• AUD/USD: PBoC rate decision, US-China trade talks, and RBA chatter.

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