Japanese Yen and Aussie Dollar Forecasts: Trade Headlines and China Inflation in Focus

Japan Machine Tool Orders and Trade Headlines Spotlight the BoJ

On Wednesday, July 9, machinery tool orders will give insights into Japan’s manufacturing sector activity, spotlighting the USD/JPY pair. Economists expect orders to rise 3.4% year-on-year in June, mirroring May’s rise.

Weaker orders could signal deteriorating manufacturing sector activity, tempering Bank of Japan rate hike bets. A less hawkish BoJ policy stance would pressure demand for the Yen. Conversely, better-than-expected numbers may raise expectations of a BoJ rate hike, fueling Yen appetite.

Manufacturing sector data is having a greater influence on sentiment toward BoJ policy as trade developments have prompted the BoJ to pause monetary policy normalization. On July 7, President Trump announced a 25% tariff on Japanese goods. However, Japan has until August 1 to reach a trade agreement to avoid levies that would impact key Japanese sectors, including the auto industry.

Progress toward a trade deal would boost rate hike expectations while stalled trade talks could close the door on a 2025 BoJ rate hike. Notably, tariffs on Japan are above the paused 24% tariff from April 2.

East Asia Econ remarked on key headwinds for Japan, stating:

“Japan in 2025 has suffered two negative shocks: tariffs, and a rebound in CPI that’s eroded real incomes. June surveys, such as today’s EW, show the household mood starting to improve as price shocks wane. But that won’t matter if Trump proceeds with the yet higher tariffs he’s now threatening.”

Weaker confidence would signal a pullback in consumption, potentially dampening inflation. Private consumption is also crucial for Japan’s economy given it contributes over 50% to GDP.

USD/JPY Daily Outlook: FOMC Meeting Minutes in Focus

Later in the session on Wednesday, the FOMC Meeting Minutes could impact Fed rate expectations and US dollar sentiment. The focus will likely be on the Fed’s stance on tariffs given the latest announcements.

Calls to delay rate cuts on the potential effect of tariffs on inflation may signal a less dovish Fed rate path, boosting US dollar demand. Fading expectations of a Q3 Fed rate cut may send USD/JPY toward the June 23 high of 148.026 and the 200-day EMA.

On the other hand, support for rate cuts to bolster the US economy despite tariff risks may weaken the US dollar. A more dovish Fed rate path could send USD/JPY toward 145 and the 50-day EMA.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Easing US-Japan trade tensions, upbeat Japanese data, hawkish BoJ signals, or dovish Fed minutes. Such factors could drag USD/JPY toward 145 and the 50-day EMA.
• Bullish USD/JPY Scenario: Rising US-Japan trade tensions, weaker Japanese data, dovish BoJ cues, or hawkish Fed minutes. These may push the pair toward 148 and the 200-day EMA.

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

AUD/USD: Can China’s Inflation Report Trigger a Beijing Move?

Meanwhile, inflation and producer price trends could drive AUD/USD price trends and influence the RBA rate path.

A pickup in deflationary pressures and a sharper fall in producer prices would signal weakening demand. Given Australia’s 50% plus trade-to-GDP ratio and heavy reliance on demand from China, falling prices may push AUD/USD toward $0.65.

Conversely, An unexpected rise in consumer prices and resilience in producer prices could send AUD/USD toward the July high of $0.65902.

On July 8, RBA Governor Michele Bullock underscored the significance of China’s economy and Beijing’s stimulus moves on the RBA’s rate stance, 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: US-China trade tensions, intensifying Chinese deflationary pressures, or Beijing’s silence on stimulus. These factors may pull AUD/USD toward the crucial $0.65 support level.
• Bullish AUD/USD Scenario: Easing US-China trade friction, stronger Chinese data, or policy pledges from Beijing could send AUD/USD toward the $0.66 level.

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

AUD/USD Daily Outlook: Fed Minutes to Drive Rate Differentials

Later today, the FOMC Meeting Minutes could influence US-Australian interest rate differentials and AUD/USD trends.

Dovish Fed minutes supporting rate cuts could narrow the rate differential, favoring the Aussie dollar, and potentially sending AUD/USD toward $0.66.

Conversely, calls for delays to rate cuts, aligning with Fed Chair Powell’s wait-and-see stance, could widen the rate differential, favoring the US dollar. A wider rate differential might drag the pair toward $0.65.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy cues, Japanese machinery orders, and US-Japan trade developments.
• USD/JPY and AUD/USD: Trade headlines, FOMC Meeting Minutes, and Fed commentary.
• AUD/USD: China data, RBA rhetoric, US-China trade headlines, 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.