Japanese Yen and Aussie Dollar News: Is a Carry Trade Unwind on the Cards?

Will Japan’s Producer Prices Influence BoJ Policy?

On Wednesday, March 12, Japan’s producer prices could influence USD/JPY trends and the Bank of Japan’s policy stance. Economists expect producer prices to rise 4% year-on-year in February, down from 4.2% in January.

A lower-than-expected reading could temper expectations of an H1 2025 BoJ rate hike. Producers adjust prices based on demand. If demand weakens, producers cut prices, passing cost savings on to customers and easing inflationary pressures. This scenario could lead the BoJ to adopt a more cautious policy stance, potentially pushing USD/JPY toward the 149.358 resistance level.

Conversely, an unexpected rise in producer prices may strengthen expectations of further BoJ policy tightening in H1 2025, even as uncertainties persist regarding President Trump’s tariff policies. A more hawkish BoJ policy outlook may pull the USD/JPY pair below the March 11 low of 146.437.

Yen Carry Trade Unwind Concerns and BoJ Policy Outlook

The strengthening Japanese Yen has reignited concerns about another Yen carry trade unwind. In July 2024, the BoJ hiked rates and cut JGB purchases, triggering a surge in Japanese Yen demand. This led to a broad-based sell-off in risk assets. Notably, prolonged Yen appreciation drove USD/JPY to a September 2024 low of 139.576.

Robin Brooks, Senior Fellow at the Brookings Institute, highlighted similarities to current market conditions, stating;

“Towards the end of July 2024, there was a flash crash in $/JPY that saw the Yen strengthen sharply (orange). That sparked an unwind in Yen-funded carry trades and – as a result – a general “risk off” that hit many risk assets like EM FX and S&P 500 (white). It’s similar now…”

Concerns about another Yen Carry Trade Unwind could prompt the BoJ to downplay a near-term policy move to avoid market disruption. This could cushion USD/JPY downside risks in the near term.

USD/JPY Trends: US CPI Report in Focus

Later in the US session, the crucial US CPI Report could dictate the Fed’s rate path through Q2 2025. Economists forecast the annual core inflation rate to ease from 3.3% in January to 3.2% in February.

• A larger-than-expected fall in core inflation could reinforce expectations of a June Fed rate cut. A more dovish Fed rate path may drag the USD/JPY pair below the March 11 low of 146.537. A drop below 146.537 could test support at 145.
• A hotter-than-expected inflation reading may reduce expectations of a Q2 2024 Fed policy move. A more hawkish Fed rate path may drive the pair toward the 149.358 resistance level and potentially test 150.

Explore expert forecasts and trade setups for USD/JPY in our latest market analysis here.

Trade Policies and China’s Stimulus: Impact on the Aussie Dollar

USD/JPY trends and the BoJ’s monetary stance can impact demand for riskier assets and commodity currencies, such as the Aussie dollar. However, US-China trade tensions and Beijing’s stimulus plans will also influence AUD/USD trends.

Rising expectations of a US recession have triggered expectations of the US reaching a trade deal with China. A de-escalation in the US-China trade war could support China’s trade terms and bolster its economy. Given China accounts for one-third of Aussie exports, rising demand from China could boost Aussie dollar demand.

However, an escalation in the US-China trade war could impact Aussie dollar demand and potentially the Australian economy. Australia has a trade-to-GDP ratio above 50%, underscoring the influence of trade.

While US-China tariff moves will influence the AUD/USD pair, Beijing’s stimulus plans to support domestic demand could mitigate ongoing tariff risks.

Potential AUD/USD trends include:

• Bullish Scenario: A de-escalation in the US-China trade war and fresh stimulus from Beijing could drive the AUD/USD pair above the 50-day EMA and $0.63623 resistance level.
• Bearish Scenario: Escalating trade tensions and delays in stimulus rollouts could weigh on AUD demand, pulling the AUD/USD pair toward $0.62.

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

Australian Dollar Daily Outlook: Fed Policy and US CPI Impact

Later in the US session, the US CPI Report will influence the US-Australia interest rate differential. A hotter-than-expected inflation reading could signal a more hawkish Fed rate path, widening the US-Aussie rate differential in favor of the US dollar. Under this scenario, the AUD/USD could drop toward the $0.62 level, a crucial support level in recent weeks.

Conversely, softer core inflation may narrow the rate differential, pushing the pair above the 200-day EMA to target the $0.63623 resistance level.

Market Trends: Central Banks and Trade Policies in Focus

Key macroeconomic drivers influencing currency markets include:

• BoJ Forward Guidance: Wage growth and inflation trends will influence the BoJ’s policy outlook.
• US Economic Data and Tariff Policies: The CPI Report and US trade policy remain key factors for currency markets.
• AUD/USD Sentiment: Beijing’s stimulus efforts and US-China trade tensions will influence RBA policy expectations and Aussie dollar trends.

Read expert USD/JPY and AUD/USD forecasts here for deeper insights.