Japanese Yen and Aussie Dollar Forecasts: USD/JPY Break below 145 Hinged on Trade Talks

US-Japan Trade Talks to Spotlight the BoJ and USD/JPY

The Japanese economy is at risk as President Trump’s August 1 tariff deadline looms large over trade negotiators. This week, Japan’s chief tariff negotiator Ryosei Akazawa is back in Washington in a bid to avert a sweeping 25% tariff on US-bound exports. The outcome of talks could influence the Bank of Japan’s interest rate path and the USD/JPY pair.

Progress toward a trade deal, including agreements to drop tariffs on Japan’s autos, may ease fears of a Japanese economic recession. Considered the cornerstone of Japan’s economy, the auto industry contributes around 10% of total GDP, when considering its broader links to logistics, R&D, and employment.

According to Japan’s Ministry of Finance, the value of exports for US-bound motor vehicles plunged 26.7% YoY in June despite actual exports rising 3.4%. Economists attributed the sharp fall in exports to carmakers slashing prices to offset the existing 25% auto tariff.

Notably, transport equipment (including cars) accounted for 22.7% of Japan’s total exports in June, underscoring the significance of the sector for the economy.

Falling export prices impact corporate profit margins, potentially impacting Japan’s labor market. Given the auto sector accounts for around 8% of Japan’s total workforce, sector-wide job losses could weigh on consumer sentiment and spending, further affecting the economy.

A deteriorating macroeconomic backdrop would likely close the door on a 2025 BoJ rate hike. A less hawkish BoJ policy stance could weigh on appetite for the Yen. On the other hand, a favorable trade deal may revive bets on a BoJ rate hike.

BoJ Chatter and Rate Hike Rhetoric in Focus

While trade talks take center stage, traders should monitor BoJ commentary for clues on the effects of tariffs on the rate path. BoJ Deputy Governor Shinichi Uchida is slated to speak on Wednesday, July 23. Views on recent inflation numbers, the effect of US tariffs on trade terms, and the timeline for further policy tightening would move the dial.

USD/JPY Daily Outlook: Housing Sector and the US Dollar

Later in the session on Wednesday, US housing sector data will give traders a snapshot of the US economy. Economists forecast monthly existing home sales to fall 0.7% in June after rising 0.8% in May.

Given that economists consider the housing market a barometer of the US economy, a downward trend in existing home sales could signal a deteriorating US economy, supporting a more dovish Fed policy stance. Rising bets on a Q3 Fed rate cut could push USD/JPY toward the 50-day EMA, potentially exposing the crucial 145 support level.

On the other hand, robust demand for existing homes may drive the pair toward the 200-day EMA.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: A US-Japan trade deal, hawkish BoJ signals, or weaker US existing home sales. Such factors could send USD/JPY toward the 50-day EMA and potentially the 145 level.
• Bullish USD/JPY Scenario: Stalled US-Japan trade talks, dovish BoJ rhetoric, or strong US housing sector data. These may send the pair toward the 200-day EMA, exposing the 149.358 resistance level.

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

AUD/USD: Westpac Leading Index in Focus

Turning to the AUD/USD pair, the Westpac Leading Index will be in focus. Economists expect the Index to rise 0.2% month-on-month in June after falling 0.1% in May. The Index provides traders insights into the Aussie economic outlook. Key components of the Index include consumer sentiment and employment expectations.

Improving sentiment and labor market conditions could signal a pickup in consumer spending, fueling demand-driven inflation. An improving economic backdrop and higher inflation outlook would support a less dovish RBA stance. Conversely, weaker sentiment and a cooling labor market could signal multiple RBA rate cuts, weighing on Aussie dollar demand.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weaker Aussie economic data, escalation in US-China trade tensions, dovish RBA rhetoric, or Beijing’s silence on stimulus. These factors could drag AUD/USD toward the 50-day EMA.
• Bullish AUD/USD Scenario: Better-than-expected Aussie data, a US-China trade deal, hawkish RBA cues, or more policy support from Beijing. These factors 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 Guidance and Rate Differentials

Later today, housing sector data may influence US-Australian interest rate differentials and AUD/USD trends.

A larger-than-expected fall in existing home sales could signal waning consumer confidence in the economy. Home buyers may delay purchases in a weakening economic environment. Falling sentiment may suggest a pullback in consumer spending and a softer inflation outlook.

A softer inflation outlook would support a more dovish Fed stance, narrowing the rate differential in favor of the Aussie dollar. A narrower rate differential would send AUD/USD toward $0.66.

Conversely, rising existing home sales would indicate a resilient US economy, potentially delaying Fed rate cuts. A more hawkish Fed rate path could widen the rate differential and push AUD/USD toward the 50-day EMA.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy guidance and US-Japan trade developments.
• USD/JPY and AUD/USD: US existing home sales and broader tariff headlines.
• AUD/USD: Aussie economic data, US-China trade talks, and Beijing’s stimulus plans.

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