Japanese Yen and Aussie Dollar Forecasts: Fed, Trade Talks Hold the Key

US-Japan Trade Talks Hit BoJ Policy Goals

US-Japan trade talks will spotlight the USD/JPY pair on Friday, July 11, as President Trump’s recently extended August 1 deadline nears. On July 7, Trump announced a 25% tariff on Japan, above the paused April 2 levy of 24%. The impact of existing tariffs on Japan’s economy and the Bank of Japan’s rate path suggests a 25% tariff could be dire.

The US currently has a 10% tariff on most Japanese goods but a 25% levy on autos. Japanese automakers have reportedly reduced export prices to counter US tariffs and maintain competitiveness. The export price index for vehicles bound for the US reportedly tumbled 19.4% year-on-year in June, the sharpest fall since records began.

The slump in export prices and a potential squeeze on profit margins could have a significant impact on wage growth, household spending, and inflation. A drop in private consumption may dampen demand-driven inflation. Furthermore, weaker consumer spending may impact the economy since private consumption contributes over 50% to Japan’s GDP. A pullback in spending, a weakening economy, and a softer inflation outlook may close the door on the BoJ raising interest rates further in 2025.

Concerns about the effect of tariffs on Japan’s economy and the BoJ’s policy stance drove USD/JPY to a July 9 high of 147.181. Stalled talks could further impact BoJ rate hike bets and Yen appetite. On the other hand, progress toward a trade deal may support a more hawkish BoJ stance, boosting demand for the Yen.

Japan Producer Prices Refect the Tariff Effect

On July 10, Japan’s producer prices for June gave insights into the effects of tariffs on inflation. Producer prices increased 2.9% year-on-year, easing from 3.3% in May. East Asia Econ remarked on the producer trends, stating:

“The sharp fall in auto export prices shows the negative impact of tariffs.”

According to the US Commerce Department’s International Trade Administration, Japan was the second-largest exporter of vehicles to the US in 2024, with 1,377,086 vehicles, and accounted for around 30% of total exports to the US. Given the auto sector contributes between 8-10% to Japan’s GDP, the outcome of trade talks could be pivotal for the BoJ and the Yen.

USD/JPY Daily Outlook: Fed Speakers in Focus

Later in the session on Friday, traders should monitor Fed commentary for insights into the US economy, inflation, and interest rate cuts.

June’s FOMC Meeting Minutes revealed policy markers viewed the impact of tariffs on US inflation as moderate and temporary. The Minutes raised expectations of further rate cuts. Support for further policy easing may impact US dollar demand, pushing the pair toward 145. However, calls to delay rate cuts over concerns about tariffs could drive USD/JPY toward the July 9 high of 147.181.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Progress toward a US-Japan trade deal, hawkish BoJ rhetoric, or dovish Fed commentary. Such factors could drag USD/JPY toward the 50-day EMA and the 145 level.
• Bullish USD/JPY Scenario: Escalating US-Japan trade tensions, dovish BoJ signals, or hawkish Fed cues. These may push the pair toward 147.

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

AUD/USD: US-China Trade Talks in Focus

Meanwhile, the AUD/USD pair climbed to a high of $0.65941 in early trading on July 11, its highest level since November 2024. The RBA’s surprise decision to hold interest rates has tempered market bets on multiple RBA rate cuts through H2 2025. During the RBA press conference on July 8, RBA Governor Michele Bullock downplayed the potential impact of US tariffs on the Aussie economy, stating:

“There will be an impact on us, partly driving deflationary forecasts, but the impact on Australia will likely be less severe than on the US.”

However, the RBA Governor continued to underscore the importance of a US-China trade deal, saying US trade terms with China remain crucial.

While China avoided higher tariffs this week, the US focus on transshipments from Asia could test US-China trade talks.

The US-Vietnam trade deal included a 40% levy on transshipments, while the US announced a 32% tariff on Indonesia this week. Punitive tariffs on Indonesia and Vietnam could impact Chinese exporters. In May, China exports to Indonesia and Vietnam jumped 25% and 30% year-on-year. Total Chinese exports increased 4.8% despite exports to the US plunging 43%.

Why China matters for the Aussie Dollar. Australia has a 50% plus trade-to-GDP ratio, with China accounting for around one-third of Aussie exports.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Rising US-China trade tensions or Beijing’s silence on stimulus. These factors may pull AUD/USD toward the crucial $0.65 support level.
• Bullish AUD/USD Scenario: Expectations of a US-China trade deal or more policy pledges from Beijing. These scenarios could drive AUD/USD toward the $0.665 level.

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

AUD/USD Daily Outlook: Fed Speakers to Impact Rate Differentials

Later today, Fed speakers could influence US-Australian interest rate differentials and AUD/USD trends.

Dovish Fed rhetoric favoring rate cuts may narrow the rate differential, favoring the Aussie dollar. A narrowing rate differential could potentially drive AUD/USD toward $0.665.

Conversely, calls to delay rate cuts could widen the rate differential, favoring the US dollar. A wider rate differential might push the pair toward $0.65.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy signals and US-Japan trade headlines.
• USD/JPY and AUD/USD: Trade developments and Fed speakers.
• AUD/USD: US-China trade news 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.