Japanese Yen and Aussie Dollar Forecasts: Trade Talks and US Inflation to Drive Volatility

Japan Reuters Tankan Index in Focus

On Wednesday, July 16, the Reuters Tankan Index provided insights into Japan’s economy, spotlighting the USD/JPY pair. The Reuters Tankan Index rose from 6 in June to 7 in July.

The Index reflects sentiment across the private sector, potentially influencing the Bank of Japan’s policy stance. A higher index reading could raise expectations of a 2025 BoJ rate hike, lifting Yen demand.

Notably, the Tankan surveys for Q2 revealed manufacturers cut profit forecasts and signaled worsening business conditions in the coming months. Meanwhile, non-manufacturers also waned over concerns about labor costs and the effect of rising prices on domestic demand. The Tankan Large Manufacturers Index rose from 12 in Q1 to 13 in Q2, while the Tankan Large Non-Manufacturers Index slipped to 34 in Q2, down from 35 in Q1.

Despite sector-specific concerns, the overall sentiment remained resilient, supporting further BoJ monetary policy tightening. The higher Reuters Tankan Index may reinforce sentiment toward the BoJ’s policy stance.

While the Tankan data is influential, trade developments will be crucial since Japan faces a 25% US tariff effective August 1.

USD/JPY Daily Outlook: US Producer Prices and Fed Policy Speculation

Later in the session on Wednesday, producer prices will influence Fed rate hike expectations. Economists expect producer prices to rise 2.5% year-on-year in June, down from 2.6% in May.

Producers typically lower prices in a weakening demand environment, passing cost savings on to consumers. Lower prices could raise bets on a September Fed rate cut, pushing USD/JPY toward the 200-day EMA, potentially exposing the 50-day EMA. Conversely, higher prices may signal a more hawkish Fed rate path, driving the pair toward the 149.358 resistance level.

Investors should also track Fed speakers for reactions to the June inflation numbers.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Progress toward a US-Japan trade deal, softer US data, hawkish BoJ signals, or dovish Fed cues. Such factors could push USD/JPY toward the 200-day EMA and potentially the 50-day EMA.
• Bullish USD/JPY Scenario: Rising US-Japan trade tensions, higher US producer prices, dovish BoJ signals, or hawkish Fed rhetoric. These may drive the pair toward the 149.358 resistance level.

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

AUD/USD: Aussie Building Activity in Focus

Meanwhile, Australian building activity could give insights into the real estate market and house price trends, influencing RBA rate cut bets and the AUD/USD pair.

Building approvals and commencement numbers indicate the pipeline of new housing supply. A jump in approvals may increase supply, potentially cooling house price growth. On the other hand, falling approvals could constrain supply, driving prices higher.

Housing supply trends can reflect economic sentiment. Supply trends may also influence rental prices and the RBA rate path. Lower supply may lead to reduced vacancy rates, fueling housing services inflation, which represents around 23% of the Consumer Price Index (CPI). Conversely, increased supply could ease rental price pressures, potentially cooling housing services inflation. The total number of dwellings commenced fell 4.4% in Q4 2025.

RBA Governor Michele Bullock remarked on the housing sector during the July press conference, stating:

“Higher building costs and durable goods in the monthly CPI numbers were higher than the RBA thought, contributing to the rate cut delay.”

AMP Head of Investment Strategy and Chief Economist Shane Oliver commented on consumer home price growth expectations and the demand outlook:

“While there was a slight dip in July on the RBA decision to hold, consumers’ home price growth expectations remain high and perceptions as to whether now is a good time to buy a dwelling remain up from recent lows, albeit they are still historically weak.”

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Cooler building activity, rising US-China trade tensions, or Beijing’s silence on stimulus. These factors may push AUD/USD toward the $0.65 support level.
• Bullish AUD/USD Scenario: Easing US-China trade friction, increased building activity, or more policy stimulus 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: Producer Prices to Drive Rate Differentials

Later today, US producer prices would likely influence US-Australian interest rate differentials and AUD/USD trends.

A larger-than-expected rise in producer prices may temper Fed rate cut bets, widening the rate differential in favor of the US dollar. A wider rate differential could push AUD/USD toward $0.65, exposing the 50-day EMA.

Conversely, lower-than-expected producer prices could narrow the rate differential, favoring the Aussie dollar. Rising bets on a September Fed rate cut may push the pair toward $0.66.

On July 15, the US CPI Report revealed sticky core inflation and rising headline inflation, tempering Fed rate cut expectations. AUD/USD briefly climbed to a high of $0.65758 before sliding to a session low of $0.65074 in reaction to the inflation data. The price action underscored sensitivity to US inflation data and Fed rate cut bets.

Key Market Drivers to Watch Today:

• USD/JPY: Japanese economic data, BoJ policy guidance, and US-Japan trade talks.
• USD/JPY and AUD/USD: US producer prices, Fed speakers, trade developments.
• AUD/USD: US-China trade developments, Aussie building activity, 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.