Japanese Yen and Aussie Dollar News: US CPI Report to Impact Pairings

USD/JPY: Reuters Tankan Survey Fuels BoJ Rate Hike Expectations

On Wednesday, January 15, the Reuters Tankan Survey put market focus on the USD/JPY pair. The Reuters Tankan Index rose to +2 in January, up from -1 in December, signaling a pickup in sentiment.

Economists view the Index as a key barometer of Japan’s economy, reflecting business sentiment across the private sector. January’s rebound was timely amid speculation about a potential BoJ policy move later in January.

Significantly, the January rise coincided with recent services sector data, signaling upward trends in new work, employment, and prices, supporting a more hawkish BoJ rate path.

Later in the day, traders should also consider machine tool orders. Economists expect orders to rise 3.0% year-on-year in December, mirroring November’s increase. Better-than-expected orders could signal an improving demand environment, bolstering Japan’s economy. Conversely, weaker figures may reflect lingering uncertainties as global markets brace for changes under the new US administration.

While machine tool orders require consideration, weaker numbers are unlikely to derail a potential January BoJ rate hike.

Bank of Japan Deputy Governor Ryozo Himino discussed monetary policy considerations on Tuesday, January 14, stating,

“In conducting monetary policy, it is difficult but essential to judge the right timing. The board will have discussion to decide whether to raise the policy rate or not, based on the outlook to be compiled.”

While the BoJ Deputy Governor did not green-light a January policy move, his comments underscored the importance of upcoming economic data before the January 24 policy meeting.

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

East Asia Econ, a research service specializing in the markets and macro of China, Japan, Korea, and Taiwan, commented on Deputy Governor Himino’s forward guidance, stating,

“Deputy governor Himino today downplayed the risks from the US that were the BOJ’s focus in 2H24. He mentioned plenty of caveats too, not least being that speeches shouldn’t be read as telegraphing any MPC outcome. But it feels like the BOJ is getting closer to hiking again.”

Notably, the Deputy Governor’s comments had a limited impact on the broader financial markets. This may be another consideration for the BoJ after the 2024 Yen Carry Trade unwind that triggered a flight to safety.

USD/JPY Trends: Focus Shifts to US CPI Report

Shifting our focus to the US session, the US CPI Report could influence the Fed rate path. Economists expect the core inflation rate to ease from 3.5% in November to 3.4% in December.

Hotter-than-expected inflation figures could reduce expectations of a first half (H1) of a 2025 Fed rate cut, potentially driving the USD/JPY pair toward 160. Conversely, a drop below 3.0% could rekindle hopes for a March Fed rate cut, dragging the pair below the 156.884 support level.

Traders should also monitor Federal Open Market Committee (FOMC) member speeches to see reactions to the CPI Report and gain insights into the Fed’s rate outlook.

AUD/USD: Labor Market Data Looms

In the case of the Australian dollar, AUD/USD trends could hinge on Thursday’s labor market data. Economists expect the Aussie unemployment rate to increase from 3.9% in November to 4.0% in December.

Looser labor market conditions may impact wage growth, potentially dampening consumer spending and demand-driven inflation. A softer inflation outlook would support a more dovish RBA rate path.

A weaker Aussie labor market would then turn market focus to quarterly inflation data, due out on January 29, to potentially decide February’s RBA interest rate decision.

Speculation about a February RBA rate cut dragged the AUD/USD to $0.61308 on January 13, its lowest since April 2020.

Recent Aussie inflation data boosted the chances of a February RBA move. The Monthly CPI Indicator rose to 2.3% in November, up from 2.1% in October. Despite the increase, inflation remained in the lower band of the RBA’s 2-3% target range.

AMP Head of Investment Research and Chief Economist Shane Oliver commented on last week’s inflation data, stating,

“There continues to be more CPI basket items with price growth running< 2%yoy than there are running > 3%yoy. This adds to confidence that upwards impetus to prices is continuing to fade giving confidence for the RBA to start cutting rates. Dec qtr CPI on 29 Jan remains key.”

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, the US CPI Report could impact the Fed rate path and the US-Aussie interest rate differential. Rising bets on a February RBA rate cut and lower expectations of an H1 2025 Fed rate cut would widen the interest rate differential in favor of the US dollar.

Higher-than-expected US inflation could drag the AUD/USD pair toward the January 13 low of $0.61308. A drop below $0.61308 could enable the bears to target the lower band of the descending channel. Conversely, softer US inflation could raise expectations of a March Fed rate cut, supporting an AUD/USD move toward the upper trend line and $0.63.

Global Market Trends: A Trader’s Guide

Central bank policies will remain the dominant market driver in early 2025 for both the AUD/USD and USD/JPY pairs. Key influences include wage growth, inflation trends, and upcoming BoJ and RBA meetings. Broader macroeconomic themes, such as U.S. trade policy and China’s stimulus measures, will also shape market trends.

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