Japanese Yen and Aussie Dollar News: BoJ and Trump’s Inauguration in Focus

USD/JPY: Machinery Orders Dip Amid BoJ Rate Hike Speculation

On Monday, January 20, machinery orders put the market focus on the USD/JPY pair. Machinery orders jumped by 3.4% month-on-month in November after rising 2.1% in October.

Orders underscored upbeat business sentiment, supporting market bets on a Bank of Japan rate hike on Friday, January 24. The pickup in business sentiment could boost employment and wages, Band of Japan requirements for raising interest rates.

Recent wage growth and inflation data have allowed the BoJ to announce a live January monetary policy meeting. BoJ Governor Kazuo Ueda and Deputy Governor Ryozo Himino recently opened the door to a rate hike.

Expert Views on the BoJ’s Monetary Policy Outlook

On Friday, January 17, Natixis Asia Pacific Chief Economist Alicia Garcia Herrero underscored market expectations of a BoJ rate hike, stating,

“BoJ to hike in January with emerging confidence on spring wage negotiations. Speculative future positions to short the Yen have been gradually built. As the Fed has become less dovish on the back of a resilient US economy, a status quo by the BoJ could open the door for more carry trade weakening the Yen further. These developments would further lift import inflation, eroding consumers’ purchasing power.”

Regarding the BoJ’s stance toward US policy, Garcia Herrero said that the Trump administration’s policy goals may remain uncertain for some time and face policy lags. She concluded,

“The BoJ is unlikely to wait beyond the financial market’s reaction to Trump’s inaugural address. Therefore, the BoJ is expected to hike by 25 bps at the January meeting, when the virtuous circle between inflation and nominal wages continue to make further progress.”

USD/JPY Trends: Focus Shifts to Trump’s Inauguration

Turning to the US, Donald Trump’s inauguration adds uncertainty to USD/JPY trends.

Plans for punitive tariffs may spark risk aversion, prompting a flight to safety. This could unwind Yen carry trades, dragging USD/JPY toward 150. Conversely, suggestions of a phased introduction of tariffs may drive demand for riskier assets, potentially pushing the USD/JPY pair toward 160.

Investors must also monitor Federal Open Market Committee (FOMC) member commentary. Reactions to recent US inflation figures and views on Fed rate cuts need consideration.

AUD/USD: People’s Bank of China to Drive Market Moves

In the case of the Australian dollar, AUD/USD trends could hinge on the People’s Bank of China’s (PBoC) next moves. On Monday, January 20, the PBoC will announce the one-year and five-year Loan Prime Rates (LPR). Economists predict the PBoC will leave the one-year and five-year LPRs at 3.1% and 3.6%, respectively.

However, an unexpected cut to the LPRs could drive demand for credit, potentially boosting consumption. A pickup in consumption may trigger Aussie dollar appetite. China accounts for one-third of Australian exports, a key contributor to Australia’s economy, which has a trade-to-GDP ratio above 50%.

China’s demand environment may also influence the RBA rate path. In December, RBA Governor Michele Bullock commented on China’s significance, stating,

“US moves against China could affect Aussie trade terms with China, potentially impacting the Aussie economy.”

For a comprehensive analysis of AUD/USD trends and trade data insights, visit our detailed reports here.

Australian Dollar Daily Chart

In the US session, Trump’s inauguration could affect market risk sentiment. Aggressive US tariffs on China may fuel safe-haven demand, potentially dragging the AUD/USD pair toward the crucial $0.61 level. Conversely, a softer stance on China may fuel risk appetite, driving the pair to the upper trend line of the descending channel.

On Friday, January 20, the IMF revised up its 2025 growth forecasts for the US, aligning with expectations of a more hawkish Fed rate path. FOMC member support for fewer rate cuts could also pressure the AUD/USD pair, potentially bringing sub-$0.61 levels into play. Trump’s stance on import duties may affect the Fed’s policy stance. Punitive US tariffs could raise import prices, potentially fueling inflationary pressures.

Global Market Trends: A Trader’s Guide

Central bank policies remain pivotal for currency trends. The BoJ’s rate decision, the PBoC’s LPR policies, and the RBA’s stance on China-driven risks will set the tone for Q1 2025. Broader themes, including US tariffs and China’s stimulus strategies, will further dictate global market sentiment.

For comprehensive insights into these market movements, explore our in-depth reports here.