Japanese Yen and Aussie Dollar Forecasts: Japan GDP Underscores Tariff Risks

Japan’s GDP Miss Could Delay BoJ Rate Hike: Impact on USD/JPY

Japan’s economy was under the spotlight on Friday, May 16. Q1 GDP numbers put the Bank of Japan and USD/JPY center stage. The economy contracted by 0.2% quarter-on-quarter (QoQ) in Q1 2025 after expanding by 0.6% in Q4 2024. Economists expected a 0.1% contraction.

Notably, private consumption stalled (Q4: +0.1%) while external demand dropped 0.8% (Q4: +0.7%). The USD/JPY pair moved higher following the release of the GDP data.

The deteriorating macroeconomic backdrop will likely sink bets on a Q3 2025 BoJ rate hike, aligning with the latest Reuters poll. In the May 7-13 survey:

• 59 of 62 economists (95%) expect the BoJ to leave rates at 0.50% on June 17.
• 39 of 58 (67%) predict the BoJ will maintain the policy status quo in Q3 2024, up from just 36% in the April survey.
• 52% forecast a 25-basis-point rate hike in 2025.

Economists cited economic uncertainties for the shift in sentiment toward the BoJ rate path. Policymakers will need to monitor trade developments and assess the impact of tariffs on Japan’s economy. On May 1, the BoJ kept interest rates steady at 0.5% and lowered its GDP and inflation forecasts.

USD/JPY Daily Outlook: Michigan Consumer Sentiment in Focus

Later in Friday’s session, the Michigan Consumer Sentiment Index will influence US dollar demand. Economists expect the Michigan Consumer Sentiment Index to rise from 52.2 in April to 53.4 in May.

A higher print could signal a potential upswing in consumer spending and inflation, potentially delaying Fed rate cuts. A more hawkish Fed rate path may drive USD/JPY above the 50-day EMA toward the May 12 high of 148.647. Conversely, a surprise drop in sentiment may retrigger recession concerns, sending the pair toward 142.5, a crucial support level.

Beyond the data, traders should monitor Fed speakers and trade headlines, also likely to influence USD/JPY.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Escalating trade tensions, weaker consumer sentiment, or dovish Fed rhetoric may drag USD/JPY toward 142.5.
• Bullish USD/JPY Scenario: Easing trade tensions, improving consumer sentiment, or hawkish Fed signals may support a move above the 50-day EMA toward 148.647.

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

AUD/USD in Focus: Labor Market Data to Guide RBA Expectations

On May 16, trade developments will influence AUD/USD trends. With the 90-day trade truce clock ticking, progress toward a trade agreement will be crucial to avoid tariffs returning to 125% on US goods and 145% on Chinese goods.

Failure to reach an agreement could impact demand and Australian trade terms, as China accounts for around one-third of Australian exports. With a trade-to-GDP ratio above 50%, weaker demand for Aussie goods would impact the economy and support a more dovish RBA policy stance. Conversely, a trade deal may boost demand, potentially tempering bets on multiple 2025 RBA rate cuts.

However, Beijing may introduce fresh stimulus measures to counter the impact of tariffs on China’s economy. Measures targeting domestic demand and consumption may support Aussie dollar demand.

After Thursday’s better-than-expected jobs report, economists continue signaling multiple 2025 RBA rate cuts, though a trade deal could temper such expectations. Shane Oliver, AMP’s Head of Investment Strategy and Chief Economist, reacted to the jobs report, stating:

“The Australian money market post the jobs data has priced in a 96% probability of a 0.25% RBA rate cut on Tuesday with three 0.25% rate cuts priced in by year end.”

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Escalating US-China tensions or dovish RBA rhetoric may send AUD/USD toward the $0.63623 support level and the 50-day EMA.
• Bullish Aussie dollar Scenario: Easing US-China trade tensions, Beijing stimulus, or hawkish RBA signals could push the pair above the 200-day EMA toward the May 7 high of $0.65144.

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

Aussie Dollar Daily Outlook: Consumer Sentiment and Rate Differentials

Later today, a higher-than-expected Michigan Consumer Sentiment Index could further reduce Fed rate cut bets. A less dovish Fed rate path may widen the US-Aussie interest rate differential in favor of the US dollar. In this scenario, the AUD/USD could drop toward the $0.63623 support level and the 50-day EMA.

On the other hand, a lower reading may raise bets on a Q3 2025 Fed rate cut, potentially sending AUD/USD above the 200-day EMA toward $0.65144.

Key Market Drivers to Watch Today:

• USD/JPY: US-Japan trade talks and BoJ commentary.
• USD/JPY and AUD/USD: Consumer sentiment data, Fed forward guidance, and global trade headlines.
• AUD/USD: US-China trade developments, RBA signals, and Beijing stimulus-related news.

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