Japanese Yen and Aussie Dollar Forecasts: JGB Purchases and US-China Trade Talks in Focus

BoJ Moves Could Trigger Yen Volatility This Week

On Monday, July 28, the Bank of Japan will be under the spotlight ahead of its interest rate decision on Thursday, July 31. The Bank will announce its Japanese Government Bond (JGB) purchases, which could influence yields and USD/JPY trends.

The BoJ’s JGB purchases play a key role in dampening Japanese Government Bond yields. Buying JGBs cools long-term interest rates, lowering yields. Falling yields would reduce the return on Yen-denominated assets, weakening foreign demand. Reduced capital inflows would soften the yen, driving USD/JPY higher.

Monday’s numbers precede the BoJ’s interest rate decision and the release of its latest forecasts, potentially crucial for near-term USD/JPY trends. The US-Japan trade deal fueled speculation about further BoJ rate hikes. Tokyo’s inflation numbers bolstered bets on an H2 2025 policy move. The so-called core core inflation rate eased from 3.1% in June to 2.9% in July, remaining well above the BoJ’s 2% target.

USD/JPY Daily Outlook: Dallas Fed Manufacturing Index in Focus

Later in the session on Monday, the Dallas Fed Manufacturing Index will likely influence US dollar demand. Economists forecast the Index to rise from -12.7 in June to -8 in July. A marked pickup in production and new orders would signal a resilient US economy after upbeat national durable goods orders on Friday. A higher-than-expected reading could send USD/JPY toward the 200-day EMA and the 148 level.

Conversely, a softer print may signal softening demand conditions, pushing the pair toward the 50-day EMA.

Monday’s data precedes the Fed’s highly anticipated interest rate decision on July 30. Fed Chair Powell has faced increased pressure from President Trump to cut rates. A rate cut could raise questions over the Fed’s policy independence, potentially impacting the US dollar.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Strong JGB purchases, hawkish BoJ cues, or weaker US data. Such factors could send USD/JPY toward the 50-day EMA and expose the 145 level.
• Bullish USD/JPY Scenario: Weak JGB purchases, dovish BoJ rhetoric, or strong US data. These may drive the pair toward the 200-day EMA, exposing the 148 level.

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

AUD/USD: US-China Trade Developments in Focus

Turning to the AUD/USD pair, the US and China will kick off a third round of high-level trade talks on July 28. Progress toward a trade deal could boost demand for the Aussie dollar.

China accounts for around one-third of Aussie exports. Given Australia’s trade-to-GDP ratio of over 50%, a trade deal may boost demand for Chinese goods, driving Aussie exports. Improving trade terms could signal a pickup in economic momentum, supporting a less dovish RBA rate path and Aussie dollar appetite.

On the other hand, stalled trade talks and the threat of higher US tariffs on Chinese goods could weigh on the Aussie dollar.

RBA Governor Michele Bullock recently referred to the importance of demand from China and Beijing’s policy moves, stating:

“On tariffs, 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. Trade terms with China remain crucial. 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: Stalled US-China trade talks, dovish RBA signals, or Beijing’s silence on stimulus. These factors could push AUD/USD toward the $0.6550 level, exposing the 50-day EMA.
• Bullish AUD/USD Scenario: A US-China trade deal, hawkish RBA rhetoric, or new stimulus measures from Beijing. These factors could send AUD/USD toward the $0.66 level, bringing $0.6650 into sight.

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

AUD/USD Daily Outlook: Dallas Fed Manufacturing Index and Rate Differentials

Later today, the Dallas Fed Manufacturing Index could influence US-Australian interest rate differentials and US dollar demand.

Better-than-expected numbers could signal improving demand and temper bets on a September Fed rate cut. A more hawkish Fed rate path would widen the rate differential in favor of the US dollar, dragging AUD/USD toward $0.6550. Sustained selling pressure may enable the bears to target the 50-day EMA.

However, a lower reading may indicate demand weakness, raising expectations of a Q3 Fed rate cut. A more dovish Fed policy stance could narrow the rate differential and send AUD/USD toward the $0.66 level. A sustained move above $0.66 would bring the $0.6650 level into play.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ JGB purchases and BoJ policy guidance.
• USD/JPY and AUD/USD: Dallas Fed Manufacturing Index and broader trade developments.
• AUD/USD: US-China trade talks 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.