Japanese Yen and Aussie Dollar News: Services PMI Puts BoJ in Focus

Japan’s Services PMI and the BoJ Rate Path

The USD/JPY enters a pivotal week as key data could influence the Bank of Japan’s upcoming monetary policy decision.

On Monday, January 6, the all-important Jibun Bank Services PMI took center stage. The finalized Services PMI increased to 50.9 in December, up from 50.5 in November while down from a preliminary 51.4. December’s survey revealed:

• Total new work expanded at the fastest rate since August.
• Employment levels increased, albeit modestly.
• Input prices rose more sharply, with wages contributing.
• Output prices also increased as firms partially passed on cost burdens to clients.

The upward trend in prices and service sector activity could bolster the case for a January BoJ rate hike. Service providers also continued to increase staffing levels, which is important in sustaining upward trends in wage growth. Bank of Japan Governor Kazuo Ueda previously underscored the significance of the services sector to the Bank, stating that the Bank must carefully scrutinize the price data.

S&P Global Market Intelligence Economist Usamah Bhatti commented on the December numbers, stating,

“December data revealed a positive month for the Japanese service sector, with sustained rises in both business activity and new business. In fact, the latter rose at the strongest rate for four months, contributing to a quicker, albeit marginal increase in activity”

USD/JPY Trends: Services PMI in Focus

Shifting our focus to the US session, the finalized Services PMI could influence the USD/JPY pair. According to the preliminary survey, the S&P Global Services PMI increased from 56.1 in November to 58.5 in December, underscoring a robust US economy.

An upward revision could further reduce bets on a Q1 Fed rate cut. This may drive the USD/JPY pair toward 158, a recent resistance level. Conversely, a sharp downward revision may refuel expectations of a Q1 Fed rate cut, pulling the pair below the 156.884 support level.

Additionally, FOMC member commentary needs consideration. Hawkish commentary would support USD/JPY return to 158, while dovish chatter could drag the pair below 156.

AUD/USD: Services PMI Holds Above the 50 Neutral Level

Turning to the Australian dollar, services sector data put the AUD/USD pair in focus. The Judo Bank Services PMI increased from 50.5 in November to 50.8 in December, down from a preliminary 51.1. Key survey findings included:

• New work accelerated in December, with export orders expanding for the first time in four months.
• Optimism rose to the highest level since May 2022, citing the prospects of lower interest rates.
• Employment fell for the first time since August 2021 as firms reported reduced capacity pressures.
• Average input prices trended higher, with wage costs contributing.
• Service providers passed the cost burdens onto clients by increasing output prices.

The pickup in wages, prices, and new orders could draw the RBA’s attention, potentially tempering bets on a February rate cut. However, the RBA will also note the fall in employment, which may dampen consumer spending and inflationary pressures.

S&P Global Market Intelligence Economics Associate Director Jingyi Pan commented on the survey, stating:

“Higher readings across price measures pose a risk for inflationary pressures, although both rates of input cost and output price inflation remain below their series averages at the end of 2024. S&P Global Market Intelligence expects an interest rate cut from February 2025, which will altogether be supportive of Australia’s growth at a forecasted rate of 2.3% in 2025.”

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, finalized US S&P Global Services PMI data will likely influence US dollar demand. An upward revision to the preliminary PMI could signal a widening US-Australia interest rate differential.

Falling bets on a Q1 Fed rate cut may drag the AUD/USD pair toward $0.61500 and the lower trend line of the descending channel. However, expectations for a more dovish Fed rate path may drive the pair toward $0.63 and the upper trend line.

Global Market Trends: A Trader’s Guide

Central bank guidance will remain a key driver for the AUD/USD and USD/JPY pairs in early 2025. Upcoming BoJ and RBA meetings, along with inflation and labor market data, will likely fuel volatility. Broader trends, including US tariff policies and stimulus measures from Beijing, will also influence global market movements.

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