Japanese Yen and Aussie Dollar News: Tariff Risks and PMI Data to Affect Price Action

Japan Manufacturing PMI in Focus Amid Tariff Concerns

On Monday, March 3, Japan’s manufacturing sector data could impact USD/JPY trends amid growing concerns over sweeping US tariffs.

According to the flash survey, the Jibun Bank Manufacturing PMI edged up to 48.9 in February from 48.7 in January, though it remained in contraction territory. An upward revision beyond the 50 neutral point would signal improving demand, strengthening the Japanese Yen. However, the flash survey showed new export orders falling at a stronger pace, while output prices rose more slowly compared with January.

Stronger domestic demand could help offset weaker overseas demand. This may ease concerns about the economic impact of US tariffs and support a more hawkish BoJ rate path. Conversely, a downward revision, driven by weaker overseas and domestic demand alongside softer price pressures, could temper BoJ rate hike bets.

Wage Negotiations Crucial to the BoJ Rate Path

Private sector activity, labor costs, and price trends will influence sentiment toward the BoJ rate path. However, key factors such as Japan’s spring wage negotiations, US tariff policies, and their potential economic impact will be crucial for the BoJ.

ING Economics expects the BoJ to keep rates steady in March but sees the potential for a rate hike as early as May, stating:

“We expect the BoJ to deliver a 25bp hike as early as May while maintaining its flexibility in the JGB purchase operation in order to manage any sudden moves in the JGB markets. In our view, the spring wage negotiations are key for gauging the timing of the BoJ’s next rate hike, while the main risk factor remains Trump’s tariff policy and how it could affect the Japanese economy.”

Over the past week, USD/JPY fell below 149 amid rising bets on a BoJ rate hike. BoJ Governor Kazuo Ueda acknowledged the upswing in Japanese Government Bond (JGB) yields, hinting at possible interventions if yields spike. The BoJ remains concerned that higher yields could trigger another Yen Carry Trade unwind, disrupting markets. ING Economics suggests the BoJ may temper rate hike speculation to avoid excessive volatility. Intervention threats could cap the downside for USD/JPY.

USD/JPY Trends: US Manufacturing Data in Focus

Shifting to the US session, economists expect the ISM Manufacturing PMI to slip from 50.9 in January to 50.8 in February. A higher reading, boosted by rising new orders, higher employment, and price increases, could temper bets on multiple Fed rate cuts. Under this scenario, the USD/JPY may move toward the 152 level and the 200-day Exponential Moving Average (EMA).

Conversely, a PMI drop below the 50 neutral level could fuel recession fears, signaling a more dovish Fed rate path. This could send the USD/JPY pair toward the February low of 148.557.

Beyond the data, investors should closely monitor US tariff policies and FOMC members’ views on inflation, labor markets, and the Fed’s policy trajectory.

Explore in-depth USD/JPY trade setups and expert forecasts here.

AUD/USD: Company Gross Profits and China Under Scrutiny

On March 3, Aussie company gross profits will spotlight the AUD/USD pair and the RBA. Economists forecast company gross profits to rise 1.5% quarter-on-quarter in Q4 2024 after sliding 4.6% in Q3 2024.

A rebound in gross profits could signal increased business investment, potentially driving job creation and wage growth. Higher wages may boost consumer spending, fueling demand-driven inflation. Rising demand could temper expectations for a near-term RBA rate cut, supporting an AUD/USD move toward $0.63.

Conversely, an unexpected fall in profits may signal a weaker labor market outlook and a more dovish RBA rate path. Under this scenario, the AUD/USD pair could drop toward $0.61500.

While Aussie data will influence AUD/USD trends, China’s Caixin Manufacturing PMI also requires consideration. A rise in new orders from China could support Australian exports, given China accounts for one-third of Australia’s trade. With a trade-to-GDP ratio above 50%, stronger demand from China would likely bolster the Aussie dollar.

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, a higher ISM Manufacturing PMI reading could lower Fed rate cut bets. A widening US-Aussie interest rate differential, favoring the US dollar, could drag the AUD/USD pair toward $0.61.

On the other hand, if the PMI falls below the 50 neutral level, it could fuel speculation about a US recession. A more dovish Fed stance could narrow the rate differential in favor of the Aussie dollar and an AUD/USD move toward $0.63.

While stronger Chinese demand could support the Aussie, escalating US-China trade tensions could counteract those gains. A full-blown US-China trade war would weigh on Australian exports and the currency.

Market Trends: Central Banks and Trade Policies in Focus

Key macroeconomic drivers influencing currency markets include:

• BoJ Forward Guidance: Stronger Japanese economic data could send Japanese Government Bond (JGB) yields higher. Rising yields increase the risk of yen intervention warnings and potential currency pullbacks.
• US Economic Data and Tariff Policies: Private sector PMIs, labor market data, and US tariff policies will influence US dollar demand.
• AUD/USD Outlook: Aussie inflation, wage trends, unemployment, and US-China trade tensions will affect RBA policy expectations.

Click here to read expert USD/JPY and AUD/USD forecasts for deeper insights.