Japanese Yen and Aussie Dollar Forecasts: Yen Dives After LDP Win, Aussie Awaits CPI Clues

Sanae Takaichi LDP Win Sinks the Yen

Japan entered a new era on Saturday, October 4, after Sanae Takaichi won the Liberal Democratic Party election, potentially becoming Japan’s first female prime minister. Takaichi’s policies were under the spotlight going into the Monday, October 6, session, weighing on the yen and sending USD/JPY up 1.26% to 149.312.

What traders need to know about Takaichi’s policies

Economists have touted Takaichi as a pro-stimulus advocate who favors ultra-loose monetary policy to boost growth. As former Japanese Prime Minister Shinzo Abe’s protégé, she will likely reintroduce the three arrows of Abenomics, these being monetary policy easing, fiscal stimulus, and structural reforms. Ultra-loose monetary policy will likely weaken the yen, sending USD/JPY higher.

LDP President Takaichi commented on the Bank of Japan and rising prices in a post-election press conference, stating:

“Demand-pull inflation — wage increases driving demand growth, leading to a gradual rising of prices and corporate profits — is the best outcome. Until such a situation emerges, we must maintain close communication with the Bank of Japan. We must stay in sync.”

The yen’s reaction underscored Takaichi’s pro-loose monetary policy stance, potentially keeping the yen carry trade alive.

The election result followed Bank of Japan Governor Kazuo Ueda’s comments on Friday, October 3. He continued to raise concerns about the potential effects of US tariffs, which challenged bets on an October rate hike.

East Asia Econ commented on Governor Ueda’s speech, stating:

“The main takeaway from Governor Ueda’s speech today was that he remains concerned about the impact of tariffs. That isn’t unreasonable, and more than today’s rise in UE, is a reason to think rate hikes aren’t a done deal.”

US Government Shutdown, Fed Speakers, and USD/JPY Outlook

Across the Pacific, updates from Capitol Hill and Fed speakers will influence USD/JPY trends later Monday. A continued Senate stalemate could signal a lengthy US government shutdown, supporting bets on multiple Fed rate cuts in the fourth quarter.

Historically, the Fed has taken a more dovish monetary policy position in the absence of official economic data and the potential impact of a shutdown on the economy.

However, traders should closely monitor the Fed’s views on inflation, the economy, and the timelines for rate cuts. Increasing support for October and December Fed rate cuts may push USD/JPY toward the 200-day and 50-day EMAs. If breached, 146.5 would be the next key support level.

On the other hand, calls to delay easing monetary policy over concerns about sticky inflation could send USD/JPY toward 150. A sustained move through 150 would bring the August high of 150.917 into play.

USD/JPY Scenarios: Politics and Shifting BoJ and Dovish Fed Risks

• Bearish USD/JPY Scenario: hawkish BoJ tone or dovish Fed outlook could push USD/JPY toward 146.5.
• Bullish USD/JPY Scenario: dovish BoJ stance or hawkish Fed outlook could drive the pair toward 150.917.

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

As traders consider the LDP election result and potential influences on the BoJ’s policy stance, inflation keeps traders focused on AUD/USD.

Aussie Inflation and the Aussie Dollar in the Spotlight

Turning focus to the AUD/USD pair, Aussie inflation will draw interest in early trading on Monday, October 6. Economists expect the TD-MI Inflation Gauge to remain flat in September after declining 0.3% month-on-month in August.

An unexpected rise in the inflation gauge would likely further challenge expectations of a November RBA rate cut. A more hawkish RBA policy stance could send AUD/USD higher.

Conversely, another monthly decline may revive hopes for a fourth-quarter RBA rate cut, pushing AUD/USD lower. Economists regard the TD-MI Inflation gauge as a leading inflation indicator, making the Aussie dollar sensitive to the data.

In late September, a hotter-than-expected Monthly CPI Indicator—rising from 2.8% in August to 3.0% in September—had earlier fueled RBA concerns about price trends, sending AUD/USD higher.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Softer inflation data, dovish RBA comments, and rising trade tensions may push AUD/USD toward the 50-day EMA and $0.655.
• Bullish AUD/USD Scenario: Stronger inflation, hawkish RBA rhetoric, and easing trade friction could drive AUD/USD toward $0.665.

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

Fed Speakers and Interest Rate Differentials

While Aussie inflation data will influence the RBA rate path, Fed speakers could provide insights into the level of support for multiple Fed rate cuts in the fourth quarter.

Growing calls for interest rate cuts in October and December would likely narrow the US-Aussie rate differential, favoring the Aussie dollar. A narrowing rate differential may send AUD/USD toward $0.665.

However, rising concerns about inflation among FOMC committee members could signal a less dovish Fed rate path. Easing bets on multiple Fed rate cuts may widen the rate differential, favoring the US dollar. A wider rate differential could push AUD/USD toward the 50-day EMA. If breached, $0.655 would be the next key support level.

Key Market Drivers to Watch Today:

• USD/JPY: Watch BoJ speeches and political statements.
• USD/JPY and AUD/USD: Monitor Capitol Hill and FOMC members’ speeches.
• AUD/USD: Track Aussie inflation data, trade headlines, and RBA speeches.

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