Japanese Yen and Aussie Dollar Forecasts: Trade News and Aussie Inflation in Focus

Japan Trade Developments Spotlight the USD/JPY

Geopolitical headwinds and diverging trade priorities between Tokyo and Washington reignited market volatility, placing USD/JPY back in sharp focus just days after the BoJ cut its growth outlook and stood pat on rates.

On Monday, May 5, the focus returned to trade developments. Finance Minister Katsunobu Kato reportedly noted that Treasury holdings could feature in US-Japan negotiations. But he later downplayed the idea of selling Treasuries, signaling lingering uncertainty over a potential deal.

Stalled progress in trade talks may revive demand for safe-haven assets, including the Japanese Yen. Meanwhile, sentiment around US-China trade talks remains pivotal. The Kobeissi Letter cited President Trump on May 5 as saying he has no plans to speak with President Xi:

“President Trump says he has no plans to speak with China’s President Xi this week. Trump says China is ‘ripping us off’ and Chinese and US officials are talking about ‘different things’.”

No progress toward a US-China trade deal may impact risk sentiment, supporting the Yen.

USD/JPY: Key Scenarios to Watch

• Bullish Yen Scenario: Rising trade tensions, US-Japan trade talks stall, or hawkish BoJ guidance may push USD/JPY lower toward the 140.309 support.
• Bearish Yen Scenario: Easing trade tensions, a US-Japan trade deal, or a dovish BoJ stance could drive the pair toward the May 2 high of 145.923.

USD/JPY Daily Outlook: Focus on ISM Services PMI

In today’s US session, the ISM Services PMI will influence Fed rate cut bets. Economists forecast the ISM Services PMI to dip from 50.8 in March to 50.6 in April.

A drop below the 50-neutral level may revive US recession concerns, potentially sending USD/JPY toward the crucial 142 support level. A higher print could signal a resilient US economy and a less dovish Fed stance. Falling bets on Fed rate cuts may drive USD/JPY above the May 2 high of 145.923, eyeing the 50-day EMA.

Don’t miss today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD in Focus: Labor Market and Inflation

Across the Pacific, Australia’s economic calendar also draws attention. The AUD/USD is in the spotlight on Monday, May 5, with labor market and inflation data in focus. Economists forecast ANZ-Indeed Job Ads to rise 0.3% in April month-on-month (MoM), following a 0.4% increase in March.

Stronger job ads may signal robust labor demand, potentially boosting wages. Higher wages may fuel consumer spending and demand-driven inflation. While inflation figures for Q1 2025 supported a May RBA rate cut, tight labor market conditions could temper expectations for multiple RBA rate cuts. In this scenario, the Aussie dollar may trend higher. Conversely, a lower jobs ad reading could signal a more dovish RBA stance, weighing on the Aussie.

Economists forecast the TD-MI Inflation Gauge to increase 0.4% MoM in April, easing from a 0.7% rise in March. A softer inflation print could reinforce multiple RBA rate cut bets, impacting Aussie dollar demand. However, a hotter reading would signal rising inflation risks, supporting a more hawkish RBA rate path and Aussie dollar appetite.

Expert Views on Inflation and the RBA Policy Outlook

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on last week’s inflation report, stating:

“Aust Q1 qtr inflation was slightly > exp at 0.9%qoq (as energy rebates fell off)/2.4%yoy with trimmed mean at 0.7%qoq. However, trimmed mean infl at 2.9%yoy was in line w RBA forecasts & back in target range for the first time since 2021 & just 2.4% annualised over last 6 mths…”

Oliver added that markets fully price in a May rate cut, with over four cuts expected by year-end.

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Rising US-China trade tensions, softer Aussie inflation, or dovish RBA signals may send AUD/USD below the 200-day EMA toward the $0.63623 support level.
• Bullish Aussie dollar Scenario: Easing US-China trade friction, hotter Aussie inflation, or hawkish RBA signals could push the pair toward $0.65.

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

Aussie Dollar Daily Outlook: Will ISM PMI Shift the Rate Narrative?

In the US session, an ISM Services PMI drop below the 50 neutral level could raise bets on multiple Fed rate cuts. A more dovish Fed stance would narrow the US-Aussie interest rate differential in favor of the Aussie. In this scenario, the AUD/USD pair could target the crucial $0.65 mark. Conversely, a surprise increase in the PMI may temper Fed rate cut bets, widening the rate differential. This could lead to a drop below the 200-day EMA and a test of the $0.63623 support level.

Key Market Drivers to Watch Today:

• USD/JPY: Japan trade developments and BoJ commentary.
• USD/JPY and AUD/USD: US Services PMI and global trade headlines.
• AUD/USD: Australian labor and inflation data, RBA outlook, and China stimulus.

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