Japanese Yen and Aussie Dollar News: Inflation Boosts RBA Rate Cut Bets

USD/JPY: Consumer Confidence and the BoJ

On Wednesday, January 8, consumer confidence numbers from Japan will spotlight the USD/JPY pair and the Bank of Japan. Economists forecast the Consumer Confidence Index to climb from 36.4 in November to 36.6 in December.

Upward trends in consumer confidence may boost consumer spending, fueling demand-driven inflation. A pickup in inflationary pressure could raise bets on a January BoJ rate hike. Notably, private consumption plays a vital role, contributing over 50% to Japan’s economy and significantly influencing inflation trends.

Bank of Japan Governor Kazuo Ueda stated that the economy and prices must align with projections to justify a rate hike, underscoring the importance of consumer sentiment.

Expert Views on Japan’s Economy and the BoJ’s Rate Path

Speculation about the timing of a BoJ rate hike has intensified in recent weeks. On Monday, January 6, Natixis Asia Pacific Chief Economist Alicia Garcia Herrero highlighted several headwinds in 2024 that should dissipate in 2025, including higher import prices and manufacturing bottlenecks. Higher import prices offset the highest wage growth in several decades, muting household consumption.

Looking ahead, Garcia Herrero stated that auto production has normalized, supporting manufacturing activity. At the same time, a JPY 21.9 trillion fiscal stimulus package, including energy subsidies and technology initiatives, is projected to boost GDP by 1%. Other measures, including tax relief for households and inflation-adjusted taxable income, are set to aid consumption.

Considering the economic outlook, she expects the BoJ to raise rates by 50 bps in 2025, with 25 bps hikes anticipated in March and October as wage data improves and inflationary pressures persist due to a weaker Yen.

USD/JPY Trends: US Labor Market in Focus

Shifting our focus to the US session, ADP employment change and jobless claims data will influence the USD/JPY pair.

Stronger-than-expected labor market data could reduce expectations for a May Fed rate cut, potentially driving the pair toward 160 and the 161.920 resistance level. Conversely, softer figures could raise expectations for a March Fed rate cut, dragging the USD/JPY toward the 156.884 support level.

Labor market conditions influence wage growth trends, consumer spending, and demand-driven inflation.

Additionally, investors should monitor FOMC member commentary. Insights into the US labor market, inflation, and monetary policy could move the dial.

AUD/USD: Aussie Inflation to Test RBA Rate Cut Bets

In the case of the Australian dollar, Aussie inflation numbers influenced the AUD/USD pair. Australia’s Monthly CPI Indicator increased from 2.1% in October to 2.3% in November. Inflation remained near the lower band of the RBA’s 2-3% target range despite the increase. According to the ABS:

• Food and non-alcoholic beverages (+2.9%), alcohol and tobacco (+6.7%), and recreation and culture (+3.2%) were the largest contributors.
• In contrast, electricity prices were down 21.5% year-on-year, with automotive fuel falling 10.2%. The ABS attributed the uptick in inflation to the timing of electricity rebates.

While headline inflation trended higher, underlying inflation softened from 3.5% in October to 3.2% in November. Underlying inflation neared the upper band of the RBA’s target range, supporting a February interest rate cut. The AUD/USD pair reacted to the data release, briefly rising to $0.62404 before falling to $0.62209.

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, US jobless claims and ADP employment change data could influence the US-Aussie interest rate differential.

Upbeat data may reduce the chances of a May Fed rate hike, widening the interest rate differential in favor of the US dollar. In this scenario, the AUD/USD pair could drop toward $0.61500 and the lower trend line of the descending channel.

Conversely, weaker-than-expected figures may trigger bets on a March Fed rate cut, supporting an AUD/USD move toward the upper trend line and the $0.63 level.

Global Market Trends: A Trader’s Guide

Central bank policy will continue to drive volatility in early 2025 for the AUD/USD and USD/JPY pairs. Key events, including upcoming BoJ and RBA meetings, inflation figures, and labor market data, will set the tone. Broader themes, including US trade policies and Beijing’s stimulus measures, may further influence global market trends.

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