Japanese Yen and Australian Dollar News: BoJ and Aussie Trade in Focus

Bank of Japan Puts the Japanese Yen Under the Spotlight

The Bank of Japan’s (BoJ) December policy move: Will Bank of Japan board members signal a December rate hike, triggering a significant USD/JPY retreat? Bank of Japan board member Toyoaki Nakamura could influence USD/JPY trends amid increasing speculation about a BoJ rate hike.

Markets remain divided on December’s BoJ interest rate decision. However, forward guidance could impact Japanese Yen demand.

Previously, board member Nakamura urged caution, emphasizing the need to assess additional economic indicators—a stance that reflects broader hesitance within the BoJ.

A change in stance toward raising interest rates could pull USD/JPY below 148.5. However, continued caution from the board would signal division, driving USD/JPY toward 151.5.

The BoJ’s forward guidance has been a focal point since July’s rate hike and cut to Japanese Government Bond (JGB) purchases. The July move resulted in a Yen carry trade unwind, causing significant global market disruptions. BoJ Governor Kazuo Ueda and board members will likely want to avoid a similar market event, giving upcoming speeches more weight.

Expert Views on a December Bank of Japan Rate Hike

Will the BoJ hike rates in December, and is another market disruption looming?

A Bank of Japan rate hike would mark the third tightening in a calendar year, the first occurrence since 1989.

Recent inflation and Services PMI data could be enough for a 25-basis point December rate hike. Tokyo’s core inflation rate rose from 1.8% in October to 2.2% in November, exceeding the BoJ’s 2% target. Furthermore, the services sector returned to expansion in November. However, concerns about potential market disruption persist.

Last week, BoJ Governor Ueda announced the prospect of interest rate hikes as inflation and the economy align with the Bank’s projections. However, Governor Ueda offered no timeline for a rate hike.

Ivory Hill founder Kurt S. Altrichter had a hawkish view on the Bank of Japan’s rate path, stating,

“The Fed is not the most important central bank to watch right now. The Bank of Japan is. Japanese companies are passing rising labor costs to consumers at the fastest rate in 32 years, supporting the case for a BoJ rate hike.”

Japanese Yen Daily Chart

Turning to Thursday’s US session, labor market and Fed speakers will influence US dollar demand and USD/JPY trends. Steady initial jobless claims would further signal a resilient US economy, potentially indicating a more hawkish Fed rate path. Falling bets on multiple Fed rate cuts may drive US dollar demand, potentially sending the USD/JPY above 151.5.

Conversely, an unexpected spike in claims and FOMC member support for multiple rate cuts to bolster the labor market could drag the pair below 148.5.

AUD/USD, Trade Data, and the RBA

Shifting focus to the AUD/USD pair, Aussie trade data requires consideration. Economists expect the trade surplus to narrow slightly from A$4.609 billion to A$4.550 billion. A lower-than-expected trade surplus may signal a weaker Aussie economy as it has a trade-to-GDP ratio of over 50%.

However, while the trade balance is important, import and export trends may have a greater significance. Increasing domestic demand could drive imports up more than exports higher, potentially narrowing the trade surplus.

Better-than-expected imports and exports might further dampen market bets on a Q1 2025 RBA rate hike, potentially driving the AUD/USD toward $0.65000. On the other hand, unexpected falls in imports and exports may signal a weaker demand environment, adversely impacting the Aussie economy and labor market.

20% of Australia’s workforce is in trade-related jobs, underscoring the significance of Australia’s trade terms on the economy. Weak data might pull the AUD/USD toward $0.64000.

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Australian Dollar Daily Chart

In the US session, US labor market data may signal a narrowing in the interest rate differential between Australia and the US. A spike in US initial jobless claims would indicate cracks in the US economy, supporting a more dovish Fed rate path.

A narrowing interest rate differential on expectations of the RBA standing pat in Q1 2025 would drive the AUD/USD pair through $0.65000. However, an unexpected fall in jobless claims could signal a more hawkish Fed rate path, leaving interest rate differentials favoring the greenback. A more hawkish Fed rate path would likely pull the AUD/USD pair below $0.64000.

Monitoring Global Monetary Policy Speculation

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