Japanese Yen and Aussie Dollar Forecasts: Japan Trade Talks and China Policy in Focus

US-Japan Trade Talks Could Shift BoJ Outlook and Jolt USD/JPY

High-stakes US-Japan trade negotiations are back in focus. Developments will spotlight the Bank of Japan’s policy stance and the USD/JPY pair. Updates from last week pointed to a potential trade deal. US Treasury Secretary Scott Bessent reportedly requested negotiations continue. The Treasury Secretary suggested a trade agreement remained possible, reportedly stating:

“Grateful to represent President Trump and the American people at the Expo 2025 Osaka Kansai […] and to celebrate the enduring alliance between our nations. A good deal is more important than a rushed deal, and a mutually beneficial trade agreement between the United States and Japan remains within the realm of possibility.”

Japan’s chief tariff negotiator, Ryosei Akazawa, will reportedly return to Washington this week to progress trade talks. Japan faces a 25% US tariff if trade talks fail to deliver a deal by August 1.

Recent trade data from Japan underscored the need to avert higher tariffs. Japanese exports declined 0.5% year-on-year in June. Auto and steel shipments reportedly fell 27% and 29%, respectively. Japanese carmakers have been slashing prices to counter the effect US tariffs on demand. Rising recession risk would likely close the door on a BoJ rate hike, weighing on the Yen.

The Kobeissi Letter commented:

“The export slump raises the risk that Japan’s economy may have entered a technical recession. This comes after Japan’s economy contracted 0.7% in Q1 2025 and yields are surging. Japan is likely heading into a recession.”

However, a trade deal removing US tariffs on auto and steel shipments could revive bets on a BoJ rate hike, potentially boosting Yen demand.

Japan’s Coalition Government Loses Upper House Election

While trade developments are crucial, Sunday’s upper house election result will draw interest. Exit polls point to the ruling coalition losing the election. A loss would make it a minority ruling party. The coalition party may seek a new partner to form a majority. The Yen held its ground in early trading on July 21. However, political uncertainty could pressure the Yen.

USD/JPY Daily Outlook: Fed Speaker to Spotlight the Dollar

Later in the session on Monday, investors should monitor Fed commentary. Reactions to last week’s inflation and retail sales data will likely influence the USD/JPY trend. Concerns about tariffs fueling inflation and calls to delay rate cuts may send USD/JPY toward the 149.358 resistance level. On the other hand, dovish Fed policy signals could push the pair toward the 200-day EMA.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Progress toward a US-Japan trade deal, hawkish BoJ rhetoric, or dovish Fed cues. Such factors could push USD/JPY toward the 200-day EMA and potentially the 147.5 level.
• Bullish USD/JPY Scenario: Rising US-Japan trade tensions, dovish BoJ signals, or hawkish Fed chatter. These may drive the pair toward the 149.358 resistance level and the 150 level.

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

AUD/USD: People’s Bank of China and Beijing Stimulus in Focus

Meanwhile, the People’s Bank of China’s interest rate decision could impact the AUD/USD pair. The PBoC is expected to keep the one-year and five-year loan prime rates (LPR) steady at 3% and 3.5%, respectively. An unexpected rate cut could boost Aussie dollar demand.

Lower rates may lift domestic demand. Given that China accounts for around one-third of Aussie exports and Australia has a trade-to-GDP ratio above 50%, demand from China is critical.

However, the Aussie dollar may face selling pressure if the PBoC keeps rates steady and Beijing remains silent on stimulus measures. There are concerns that US tariffs could impact Chinese exports in the second half of the year. Weaker Chinese exports may weigh on demand for Aussie goods.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the economic outlook, highlighting the need for fresh stimulus, stating:

“But, second half of the year, that’s in a way where things could really get worse, both in terms of exports but also in terms of the whole sentiment. Because the second half of the year is expected to be much worse, I think they need to stimulate further.”

During the July press conference, RBA Governor Michele Bullock remarked on China policy, 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: Rising US-China trade tensions, dovish RBA cues, or Beijing’s silence on stimulus. These factors could drag AUD/USD below the 50-day EMA, bringing the 200-day EMA into play.
• Bullish AUD/USD Scenario: A US-China trade deal or more policy support from Beijing could send AUD/USD toward the $0.6550 level.

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

AUD/USD Daily Outlook: Fed Guidance and Rate Differentials

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

Calls to delay to rate cuts to assess the effect of tariffs on inflation may widen the rate differential in favor of the US dollar. A wider rate differential may push AUD/USD below the 50-day EMA, exposing the 200-day EMA.

Conversely, dovish chatter may lift bets on a September Fed rate cut. A narrowing rate differential could drive the pair toward $0.6550, bringing $0.66 into play.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy guidance and US-Japan trade talks.
• USD/JPY and AUD/USD: Fed commentary and tariff headlines.
• AUD/USD: US-China trade developments, PBoC monetary policy, and Beijing’s stimulus plans.

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