Japanese Yen and Aussie Dollar Forecasts: Manufacturing PMIs and Tariffs in Focus

Jibun Bank Manufacturing PMI Spotlights USD/JPY

On Monday, June 2, Japan’s manufacturing sector will face scrutiny, potentially impacting Japanese Yen appetite and USD/JPY trends. According to the flash survey, the Manufacturing PMI increased to 49 in May, up from 48.7 in April, but remained below the neutral 50 level.

A higher PMI print could ease concerns about US tariffs impacting demand for Japanese goods. However, prices, new orders, and labor market trends also require consideration. Rising orders, prices, and employment could signal a pickup in economic momentum, strengthening the Yen and sending USD/JPY lower.

Conversely, a softer PMI reading, coupled with falling prices, new orders, and employment, may ease BoJ rate hike bets, driving the pair higher. In Q1, Japan’s economy contracted by 0.2%, with external demand down 0.8% quarter on quarter.

The GDP numbers supported fading bets on a Q3 BoJ rate hike. In the latest Reuters Poll, conducted between May 7-13:

• 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.

However, signs of economic recovery could revive Q3 BoJ rate hike predictions and boost Yen demand, challenging the current market consensus.

Beyond the data, trade developments remain a key driver. Rising trade tensions could trigger a flight for safety, driving Yen demand, while easing trade frictions may push USD/JPY higher.

USD/JPY Daily Outlook: The Fed and Manufacturing in Focus

Later in the session, the US manufacturing sector will face scrutiny as trade tensions linger. Economists forecast the ISM Manufacturing PMI to remain at 48.7 in May, holding below the neutral 50 level.

A lower PMI reading, combined with rising prices but falling new orders and slower job creation, may fuel stagflation fears, impacting US dollar demand. In this scenario, USD/JPY may drop toward the May 27 low of 142.102. Conversely, a higher PMI reading, stable prices, rising new orders, and a pickup in job creation could ease fears of a US recession, potentially delaying Fed rate cuts. A more hawkish Fed stance could drive USD/JPY toward the May 29 high of 146.285.

Beyond the data, traders should monitor Fed speeches. Reactions to Friday’s Personal Income and Outlays report and trade developments could impact US dollar appetite.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Renewed trade tensions, hawkish BoJ cues, softer US PMI data, or dovish Fed rhetoric could drag USD/JPY below 142.108 toward 140.
• Bullish USD/JPY Scenario: Easing trade friction, a dovish BoJ stance, upbeat US data, or hawkish Fed signals may lift the pair toward 145.507.

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

AUD/USD in Focus: Labor Market and PMI

Also scheduled for June 2, Aussie job ad data will influence sentiment toward the labor market and AUD/USD trends. Economists forecast ANZ-Indeed job ads to rise 0.4% in May after increasing 0.5% in April.

A higher reading would signal a tightening labor market and rising wages. Higher wages could boost household spending and inflation. Rising inflation could temper bets on multiple RBA rate cuts, sending AUD/USD toward $0.65. Conversely, a lower print may indicate weakening labor market conditions, potentially dampening consumer spending and inflationary pressures. A more dovish RBA stance could push the pair below $0.64 toward the $0.63623 support level.

Recent retail sales figures have raised concerns about the consumption component of the Aussie economy. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on retail sales, stating:

“Aust real retail sales per person has trended down this year and is back to around where it was a year ago after a very mild rising trend into late last year. The ‘cost of living’ remains a problem (falling inflation is not the same as falling prices!).”

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Weak job ads or dovish RBA signals may push AUD/USD below the 200-day Exponential Moving Average (EMA) toward $0.64.
• Bullish Aussie dollar Scenario: Higher job ads or hawkish RBA cues could send the pair toward $0.65 and potentially the May 26 high of $0.65370.

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

Aussie Dollar Daily Outlook: US ISM Manufacturing PMI and the Fed Rate Path

Later today, US manufacturing sector data will influence US-Aussie interest rate differentials and AUD/USD. A higher ISM Manufacturing PMI and rising prices likely widen the US-Aussie interest rate differential in favor of the US dollar. A wider differential could send AUD/USD below the 200-day EMA and $0.64, exposing the $0.63623 support level.

Conversely, a weaker PMI and falling prices may narrow the rate differential and push AUD/USD toward $0.65370.

In addition to economic indicators, trade developments will continue to fuel price volatility.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy outlook, Japan economic data, and trade talks.
• USD/JPY and AUD/USD: Fed signals, US private sector data, and trade headlines.
• AUD/USD: Aussie job ads, RBA rate cut bets, and China’s policy direction.

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