Japanese Yen and Aussie Dollar Forecasts: Markets to Watch Tokyo, China Data

USD/JPY: Bank of Japan and Looming Election in Focus

Political uncertainty and central bank signals may jolt the yen. Traders should also expect US-China trade developments and Bank of Japan policy signals to fuel USD/JPY volatility on Monday, October 20.

Traders should closely monitor news headlines from Tokyo as Sanae Takaichi seeks support from smaller parties to form a Liberal Democratic Party (LDP)-led coalition government.

On Sunday, October 19, news broke that LDP leader Sanae Takaichi was on track to become Japan’s first woman prime minister. The LDP and Japan Innovation Party (JIP), also referred to as Ishin, are expected to sign a pact on Monday, October 20.

An LDP-Ishin alliance would leave Takaichi two seats short of the 233 needed to form an LDP-led majority coalition government. Takaichi could be elected prime minister on Tuesday, October 21.

Why Japan’s election result matters for USD/JPY traders.

USD/JPY soared to an eight-month intraday high of 153.274 on October 10. Takaichi’s pro-ultra-loose monetary policy stance weakened bets on BoJ rate hikes if she were to become prime minister. However, the pair tumbled 1.25% to close at 151.128 on October 10 on news of the Komeito Party withdrawing from the coalition government.

USD/JPY price trends underscored Takaichi’s potential influence on the BoJ’s policy stance as prime minister.

The USD/JPY pair could surge toward 153.274 if the LDP and Ishin sign an alliance. On the other hand, fading bets on Takaichi becoming prime minister could boost demand for the yen.

Beyond domestic politics, US-China trade talks may also influence USD/JPY price trends. Rising tensions could boost demand for safe-haven assets, such as the yen. However, a de-escalation in the US-China trade war could lift sentiment and appetite for the US dollar.

Capitol Hill and the USD/JPY Outlook

Across the Pacific, market focus will return to Capitol Hill after last week’s failed votes to pass a stopgap funding bill.

An extended US government shutdown would leave the Fed without crucial economic data ahead of the October 29 interest rate decision. Economists expect the Fed to take a more dovish policy stance amid rising concerns about the labor market.

Rising bets on aggressive Fed rate cuts in October and December may push USD/JPY lower to 150. If breached, the 50-day Exponential Moving Average (EMA) would be the next key technical support level.

On the other hand, concerns about elevated inflation and risks of stagflation may drive the pair toward 152. A sustained move above 152 could pave the way toward the October 10 high of 153.274.

USD/JPY Scenarios: BoJ Uncertainty, US Data, and Dovish Fed Bets

• Bearish USD/JPY Scenario: hawkish BoJ comments, LDP fails to form a coalition with Ishin, or rising US-China tensions could push USD/JPY toward the 50-day EMA.
• Bullish USD/JPY Scenario: dovish BoJ rhetoric, LDP signs pact with Ishin, or easing US-China friction could send USD/JPY toward 153.274.

Read the full USD/JPY forecast, including chart setups and trade ideas.

Beyond Japan, Chinese economic data and policy announcements may influence the AUD/USD pair amid lingering US-China trade tensions.

China’s GDP, the PBoC, and the US-China Trade War in Focus

Turning the focus to the AUD/USD pair, Chinese economic data and Beijing’s policy decisions will likely influence market sentiment. Ahead of key economic data, the PBoC will announce its interest rate decisions. Economists expect the PBoC to keep the one-year and five-year loan prime rates at 3% and 3.5%, respectively. Barring an unexpected rate cut, market focus will shift to China’s data.

Weaker-than-expected retail sales, industrial production, and rising unemployment, combined with slower GDP growth, could signal a further drop in demand.

Falling demand may impact the Aussie economy, given that China accounts for one-third of Aussie exports. Declining exports to China could support a more dovish RBA rate path since Australia has a trade-to-GDP ratio of over 50%. A more dovish RBA policy stance would weigh on demand for the Aussie dollar.

Conversely, better-than-expected figures could ease concerns about weakening demand for Aussie goods. Rising exports to China may lift economic momentum, supporting a less dovish RBA. A less dovish RBA policy stance would increase appetite for the Aussie dollar.

With Chinese economic indicators in focus, traders should closely monitor US-China trade headlines. Rising tensions would weigh on the Aussie dollar. On the other hand, a de-escalation in the trade war could boost demand.

US Administration Cools Market Jitters Over Full-Blown Trade War

AUD/USD was up 0.21% to $0.65035 in early trading on Monday, October 20. Investors reacted to US President Trump confirming his meeting with President Xi, signaling a softer stance ahead of trade talks. US Treasury Secretary Scott Bessent also eased fears of a full-blown trade war, stating:

“This evening, Vice Premier He Lifeng and I engaged in frank and detailed discussions regarding trade between the United States and China. We will meet in-person next week to continue our discussions.”

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weak Chinese data, dovish RBA comments, and renewed trade tensions may push AUD/USD toward the 200-day EMA. If breached, $0.645 would be the next key support level.
• Bullish AUD/USD Scenario: Strong Chinese data, hawkish RBA rhetoric, and easing trade tensions may send AUD/USD toward the 50-day EMA and $0.655.

See our full AUD/USD analysis for detailed trends and trade setups.

Capitol Hill, Labor Market Jitters, and Interest Rate Differentials

While Chinese economic data and trade developments continue to influence AUD/USD trends, traders should closely monitor Capitol Hill.

A prolonged US Senate stalemate could weigh the US economy, supporting a more dovish Fed rate path. Rising expectations of aggressive Fed rate cuts to bolster the labor market and economy could send AUD/USD toward the 50-day EMA and $0.655.

Conversely, a Senate vote passing a stopgap funding bill would likely ease fears of a sharper economic slowdown. Traders may lower bets on multiple Fed rate cuts, pushing AUD/USD to the 200-day EMA. A drop below the 200-day EMA would expose the $0.645 support level.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ commentary and political developments.
• USD/JPY and AUD/USD: US-China trade headlines and Capitol Hill-related updates.
• AUD/USD: RBA speeches and Chinese economic data.

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