Japanese Yen and Aussie Dollar Forecasts: Will USD/JPY Break 145 in Fed Rate Cuts?

BoJ Decision Looms as Japanese Exports Steady

Markets brace for dual central bank shocks. Japanese trade data has raised hawkish Bank of Japan bets ahead of the Bank’s interest rate decision on Friday, September 19. The FOMC decision is on Wednesday. The USD/JPY held its ground despite a modest drop in exports and hopes that the US-Japan trade agreement may boost demand for Japanese goods.

Exports declined 0.1% year-on-year in August after falling 2.6% in July, while imports dropped 5.2% (July: -7.4%). Notably, exports to the US slid 13.8%, while shipments to China slipped 0.5%.

Why do traders need to track Japan’s trade terms?

Japan has a trade-to-GDP ratio of around 45%, exposing the economy to trade terms. Falling exports could increase competition, potentially squeezing margins. Firms may cut jobs to manage costs, weakening consumer sentiment and spending. A pullback in spending could weigh on the economy, given that private consumption accounts for around 55% of the GDP.

While August’s data influenced appetite for the Yen, September and October’s trade data will likely have a greater impact on USD/JPY. In early September, the US reduced tariffs on Japanese goods to 15%.

Fed Cuts in Focus: Market Impact on USD/JPY

Later Wednesday, the FOMC will be under the spotlight, amid expectations of multiple near-term Fed rate cuts. Will the Fed’s cut trigger a yen rally?

Economists forecast the FOMC to lower interest rates by 25 basis points. According to the CME FedWatch Tool, there is a 3.9% chance of a larger 50 bps rate cut. Unless there is a larger rate cut, the FOMC Economic Projections and Fed Chair Powell’s press conference will have a greater effect on USD/JPY.

A dovish 50 bps rate cut, with projections of two further cuts in the fourth quarter, could push USD/JPY toward 145. If breached, 140.309 would be the next key support level.

On the other hand, a 25 bps rate cut, with projections of fewer or no further rate cuts in the fourth quarter, could send the pair toward 148. A break above 148 would bring the 149.358 resistance level into play.

USD/JPY Scenarios: Hawkish BoJ vs. Dovish Fed Risks

• Bearish USD/JPY Scenario: Hawkish BoJ cues or a dovish Fed rate cut could push USD/JPY toward 145.
• Bullish USD/JPY Scenario: Dovish BoJ comments or a hawkish Fed rate cut could drive the pair toward 149.358.

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

Beyond USD/JPY, upbeat Aussie economic data continues to challenge expectations of multiple RBA rate cuts beyond November, influencing AUD/USD trends.

Aussie Westpac Leading Index in Focus

Shifting focus to the AUD/USD pair, the Westpac Leading Index will provide traders with insights into Australia’s economic outlook. Economists expect the Leading Index to increase 0.2% month-on-month in August after July’s 0.1% rise.

A higher print could indicate a tightening labor market and an upswing in consumer sentiment. Consumers could increase spending on expectations of falling unemployment and potentially higher wages, fueling demand-driven inflation. A higher inflation outlook may temper expectations of multiple RBA rate cuts, lifting demand for the Aussie dollar.

Conversely, a lower reading could support a more dovish RBA rate path, weighing on the Aussie dollar. Consumers could curb spending on expectations of rising unemployment, dampening demand-driven inflation.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Weak Aussie data or dovish RBA chatter may push AUD/USD toward $0.66.
• Bullish AUD/USD Scenario: Strong Aussie data or hawkish RBA rhetoric could send AUD/USD toward $0.67.

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

Fed to Trigger Sharp Shift to US-Aussie Rate Differentials

While economists expect a November RBA rate cut, traders continue betting on aggressive Fed rate cuts, driving AUD/USD above $0.6650 in recent sessions.

A dovish 25-basis-point Fed rate cut would narrow the rate differential in favor of the Aussie dollar. A narrowing rate differential may send AUD/USD above the $0.67 level and bring $0.6750 into play.

However, a hawkish 25 bps Fed rate cut, projecting one or no rate cuts in the fourth quarter, may widen the rate differential. Under this scenario, the AUD/USD pair could drop below the $0.6650 level. If breached, $0.66 would be the next key support level.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ signals and Japanese politics.
• USD/JPY and AUD/USD: FOMC interest rate decision, economic projections, and press conference.
• AUD/USD: Aussie Westpac Leading Index and RBA policy cues.

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