Japanese Yen and Aussie Dollar Forecasts: Politics and Tariffs Drive USD/JPY and AUD/USD

Politics and the Bank of Japan in Focus as USD/JPY Faces Volatility

Traders should brace for a period of political and monetary policy uncertainty, which may trigger heightened USD/JPY volatility.

On Friday, October 10, the long-standing Liberal Democratic Party (LDP)–Komeito coalition came to an abrupt end. Japan’s Komeito party withdrew from the more than 20-year coalition following Sanae Takaichi’s win in the LDP election.

The collapse of Japan’s coalition could significantly weaken Takaichi’s push for fiscal stimulus and ultra-loose monetary policy to drive economic momentum.

The breakup means Takaichi must find sufficient parliamentary support for her key policies, dubbed Sanaenomics. Developments in Tokyo could affect demand for the Japanese yen and USD/JPY price trends.

Currently, the LDP holds 196 seats in the Lower House, 37 seats short of the 233 needed for a majority. Without the Komeito party, Takaichi would need support from at least two parties, with the prime ministerial vote potentially as early as Tuesday, October 14.

Failure to form a majority government could result in a minority government, a heightened period of political uncertainty, and clouding the BoJ rate path. This uncertainty would likely weigh on the yen, sending USD/JPY higher. If Takaichi secures support, her ultra-loose stance may further weaken the yen, creating a challenging scenario in either outcome.

Traders should closely monitor political developments after last week’s price swings.

Fed Speakers and USD/JPY Outlook

Across the Pacific, market focus will turn to the US Federal Reserve. The absence of key labor market and inflation data has fueled speculation about October and December Fed rate cuts.

Growing support for multiple Fed rate cuts in Q4 could dampen US dollar demand, pushing USD/JPY toward 150. On the other hand, rising concerns about inflation could signal a less dovish Fed rate path, sending USD/JPY toward 155.

Traders should also watch for Capitol Hill developments, with a vote on a stopgap funding bill, potentially as early as Tuesday, October 14.

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

• Bearish USD/JPY Scenario: hawkish BoJ rhetoric or dovish Fed cues could push USD/JPY toward 150.
• Bullish USD/JPY Scenario: dovish BoJ chatter or hawkish Fed signals could send USD/JPY toward 155.

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

Beyond Japan, market attention is also turning to China and Australia, with developments likely to influence the AUD/USD pair.

China Trade Data and a US-China Trade War Spotlight the Aussie Dollar and the RBA

Turning focus to the AUD/USD pair, Chinese economic data will take center stage following President Trump’s tariff announcement.

Economists forecast Chinese exports to rise 6% year-on-year in September (August: 4.4%) and imports to climb 1.5% (August: +1.3%).

A stronger export reading could signal rising demand for Chinese goods, which benefits Australia, given that China accounts for roughly one-third of Aussie exports. A pickup in Chinese demand could strengthen trade terms, supporting a less dovish RBA rate path.

On the other hand, a lower reading may fuel bets on an RBA rate cut in November and further policy easing in the first half of 2026.

However, US-China trade tensions may overshadow the data. On Friday, October 10, US President Trump announced an additional 100% tariff on Chinese shipments. A retaliatory response from Beijing could trigger a flight-to-safety, weighing on the Aussie dollar.

Crucially, the latest trade policies will take effect on Saturday, November 1, the final day of the APEC Summit. President Trump and President Xi will meet at the APEC Summit, starting on Friday, October 31. The latest moves could be posturing ahead of the highly anticipated meeting between the two presidents.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weak Chinese data, dovish RBA rhetoric, and rising trade friction 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 signals, and easing trade friction could send AUD/USD toward $0.655.

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

Fed Speakers and Interest Rate Differentials

While Chinese economic data and trade developments continue to fuel uncertainty about the RBA’s policy outlook, Fed speakers will also influence AUD/USD.

Growing support for October and December Fed rate cuts would narrow the US-Aussie rate differential, favoring the Aussie dollar. A narrowing rate differential could drive AUD/USD toward $0.655 and the 50-day EMA.

Conversely, calls to delay rate cuts amid tariff and inflation uncertainty may widen the rate differential, favoring the US dollar. A widening rate differential may drag AUD/USD below the 200-day EMA, exposing $0.645. If breached, $0.64 would be the next key support level.

Key Market Drivers to Watch Today:

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

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