Japanese Yen and Aussie Dollar Forecasts: Inflation and Fed Chair Powell in Focus

Bank of Japan Summary of Opinions Spotlights the Yen

On Wednesday, June 25, the Bank of Japan and USD/JPY took center stage amid shifting sentiment toward the Bank’s rate path. The Summary of Opinions offered insights into policymakers’ stances on inflation, the economic outlook, and the timing of the next rate hike. Key opinions included:

• Japan’s economic growth is likely to moderate due to the effects of trade and other policies in each jurisdiction.
• While much of the hard data for April and May has been relatively solid, it is likely that the effects of tariff policies are yet to materialize.
• The Bank needs to take some time to examine the magnitude of the impact of tariffs on the real economy.
• Underlying CPI inflation is likely to be sluggish, mainly due to the deceleration in the economy, and risks to this inflation are skewed to the downside.
• Although uncertainty regarding trade policies remain extremely high, on the domestic front, wage developments have been solid, and the CPI has been slightly higher than expected.
• If its outlook for economic activity and prices will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation.

The high degree of uncertainty and downside risks left Board member favoring a hold on rates at 0.5%. The USD/JPY pair edged higher in early trading, rising 0.05% to 144.96.

Bank of Japan’s Naoki Tamura will deliver a speech on June 25, potentially influencing the USD/JPY pair. The de-escalation in the Middle East conflict and trade developments could be talking points as the BoJ assesses these effects on inflation and the economic outlook.

USD/JPY Daily Outlook: Fed Chair Powell to Trigger Volatility

Later in the session, Fed Chair Powell will deliver a second day of testimony on Capitol Hill. Support for a Q3 Fed rate cut on optimism inflation is sustainably falling toward the 2% target and concerns about the labor market could pressure the US dollar. A more dovish Fed rate path may drag USD/JPY below the 50-day EMA toward 142.5.

Conversely, the USD/JPY pair could rise toward the June 23 high of 148.026 if Powell stands firm on keeping rates steady.

Beyond the Fed, trade developments and Middle East headlines will also drive USD/JPY trends.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Renewed Israel-Iran tensions, hawkish BoJ cues, or a dovish Fed Chair could drag USD/JPY toward 142.5.
• Bullish USD/JPY Scenario: Progress toward a US-Iran nuclear agreement, dovish BoJ signals, or a hawkish Fed Chair may send the pair toward 148.026.

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

AUD/USD in Focus: Aussie Inflation to Fuel RBA Rate Cut Bets

Meanwhile, Australian inflation figures put the AUD/USD pair in focus early in the June 25 session. Economists expect the Monthly CPI Indicator to rise 2.3% in May, down from 2.4% in April.

A lower inflation reading could boost expectations of multiple RBA rate cuts, impacting Aussie dollar demand. Conversely, a higher print may signal a less dovish RBA stance, increasing Aussie dollar appetite.

Last week, Aussie labor market data bolstered expectations of multiple RBA rate cuts. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked:

“Aust May emp fell 2500 but its still +2.3%yoy, full time emp +38.7k, hrs wkd +1.3% & unemp still low at 4.1%. The solid jobs mkt argues against rate cuts but given cooling inflation, weak GDP & downside risks from tariffs & Mid East we continue to expect a cut in July & 3 this yr.”

Beyond the data, US-China trade developments and Middle East headlines need consideration.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Escalating Iran-Israel tensions, stalled US-China trade talks, or softer Aussie inflation. Under these scenarios, AUD/USD may drop toward 50-day and 200-day EMAs.
• Bullish AUD/USD Scenario: Easing Iran-Israel tensions, higher Aussie inflation, or positive US-China trade news could drive AUD/USD toward the June 16 high of $0.65517.

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

Aussie Dollar Daily Outlook: Fed Chair Powell and Rate Differentials

Later today, Fed Chair Powell may dictate US-Aussie interest rate differentials and AUD/USD trends.

A dovish Fed Chair could boost expectations of a Q3 Fed rate cut. A more dovish Fed may narrow the rate differential favoring the Aussie dollar. A narrower rate differential may send AUD/USD toward the June 16 high of $0.65517.

Conversely, a hawkish Fed Chair may temper rate cut bets. A less dovish Fed stance could widen the rate differential, bringing sub-$0.6450 levels into sight.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy signals and US-Japan trade headlines.
• USD/JPY and AUD/USD: Trade developments and Middle East news.
• AUD/USD: Aussie inflation and US-China trade developments.

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