Japanese Yen and Aussie Dollar Forecasts: PM Resignation Hits Yen, China Data Up Next

Japan GDP Rebound Tests BoJ’s Patience as Yen Faces Political Turmoil

Upbeat Q2 GDP contrasts with PM Ishiba’s resignation, leaving USD/JPY traders bracing for policy and volatility shifts. Japan’s finalized Q2 GDP data may fuel speculation over a shift in BoJ policy.

The economy expanded 0.5% quarter-on-quarter in Q2, up from a preliminary 0.3% after stalling in Q1. Notably, external demand rose 0.3% QoQ after falling 0.8% in the first quarter, while private consumption increased 0.4% (Q1: 0.2%).

Given that private consumption is a key factor for the BoJ, the upward revision supports a more hawkish BoJ outlook on interest rates. According to the preliminary report, private consumption had increased 0.2%.

The Japanese yen was under pressure this morning despite the upbeat data. Japanese Prime Minister Ishiba’s resignation weighed on sentiment, overshadowing the GDP numbers.

The USD/JPY pair rose 0.74% to 148.441 in early trading as concerns about political stability pressured the yen. Political uncertainty may affect the timeline for a BoJ rate hike. Political developments will take center stage in the coming weeks as the Liberal Democratic Party choose a new leader.

USD/JPY Traders Eye Inflation Expectations as Policy Bets Diverge

Later Monday, consumer inflation expectations would provide insights into potential spending trends. Economists expect consumer inflation expectations remained unchanged at 3.1% in August.

A lower reading may signal a pullback in private consumption. Expectations of lower prices could delay spending, weighing on the US economy, where private consumption accounts for 67% of GDP. A pullback in consumption may also ease inflationary pressures, supporting a more dovish Fed rate path. In such a case, USD/JPY could drop below the 200-day EMA, exposing the 50-day EMA.

On the other hand, a higher print could indicate a pickup in consumption, tempering Q4 Fed rate cut bets. Less dovish Fed policy signals may send USD/JPY toward the 149.358 resistance level.

With both the BoJ and Fed’s shifting policy outlooks, traders should closely monitor central bank rhetoric. Shifts in monetary policy could fuel USD/JPY volatility.

USD/JPY Scenarios: Hawkish BoJ vs. Dovish Fed Risks

• Bearish USD/JPY Scenario: Hawkish BoJ rhetoric, weaker US data, or dovish Fed cues could push USD/JPY toward the 200-day EMA.
• Bullish USD/JPY Scenario: Dovish BoJ chatter, strong US data, or hawkish Fed signals could drive the pair toward the 149.358 resistance level.

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

While speculation intensifies over the BoJ rate path, the RBA’s policy stance also faces scrutiny after recent upbeat data from Australia.

AUD/USD Braces for China Trade Shock and RBA Fallout

Shifting focus to the AUD/USD pair, China’s August trade data could affect expectations of a Q4 RBA rate cut. Economists forecast Chinese exports will rise 5% year-on-year, down from 7.2% in July, while expecting imports to increase 3% (July: 4.1%).

Lower Chinese imports and export readings could signal weakening demand, supporting a more dovish RBA policy stance. Rising bets on a Q4 RBA rate cut may affect investor appetite for the Aussie dollar. Conversely, stronger trade terms would signal resilient demand and a less dovish RBA rate path.

Impact of China’s Trade Terms on AUD/USD Traders

Australia has a trade-to-GDP ratio of over 50%. China’s trade terms can affect the Australian economy, given that China accounts for one-third of exports.

RBA Governor Michele Bullock has previously commented on the Bank’s focus on China’s economic data and policy measures. In July, Governor Bullock stated:

“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.”

For context, the AUD/USD gained 0.31% on August 7, closing at $0.65226. China reported exports of 7.2% (year-on-year) in July, up from 5.8% in June, lifting AUD/USD.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weaker trade data or dovish RBA signals. These factors could push AUD/USD toward the $0.65 level.
• Bullish AUD/USD Scenario: Strong China data or hawkish RBA cues. These factors could send AUD/USD toward the $0.66 resistance level.

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

Inflation Expectations Set the Tone for AUD/USD Rate Differentials

While economists expect a Q4 RBA rate cut, traders are betting on a more dovish Fed rate path through the fourth quarter.

Falling consumer inflation expectations would support multiple Fed rate cuts. A more dovish Fed policy stance would narrow the US-Aussie interest rate differential in favor of the Aussie dollar. Under this scenario, the AUD/USD pair could rise toward the crucial $0.66 level, potentially bringing the July 24 high of $0.6625 into play.

Conversely, a higher reading may indicate a less dovish Fed rate path. Fading bets on Q4 Fed rate cuts could widen the rate differential, pushing AUD/USD toward the 50-day Exponential Moving Average (EMA). If breached, the 200-day EMA would be the next key support level.

Key Market Drivers to Watch Today:

• USD/JPY: Political developments, BoJ comments, and Japanese economic data.
• USD/JPY and AUD/USD: US data and Fed commentary.
• AUD/USD: Chinese trade data and RBA policy guidance.

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