Japanese Yen and Aussie Dollar News: US Tariffs and FOMC Chatter in Focus

Inflation Cools, Impacting USD/JPY

On Friday, March 21, Japan’s inflation numbers influenced the USD/JPY pair and sentiment toward the Bank of Japan’s policy outlook. Key inflation figures included:

• Headline inflation slowed from 4% in January to 3.7% in February.
• Core inflation eased from 3.2% to 3.0% in February.
• Inflation ex-food and energy inched up from 2.5% to 2.6%.

While inflation ex-food and energy ticked higher, the softer core and headline inflation rates could temper bets on an H1 2025 BoJ rate hike. A less hawkish BoJ policy outlook may widen the US-Japan interest rate differential in favor of the US dollar, potentially driving the USD/JPY pair toward 150.

Despite softer inflation, the BoJ remains an outlier among major central banks, as the Fed, ECB, and BoE have begun easing monetary policy. This policy divergence may keep USD/JPY underpinned in the near term.

BoJ Policy Outlook: Expert Insights

On March 19, the BoJ left the interest rate at 0.5%, in line with market expectations. However, recent economic indicators and spring wage negotiations (Shunto) could delay a BoJ rate hike beyond July 2025.

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero commented on the outcome of the spring wage negotiations:

“While the Bank of Japan (BoJ) decided to hike in January based on higher confidence on the spring wage negotiation, wage growth is unlikely to accelerate in 2025. While the labor union requested a 6.09% wage increase, the largest growth in thirty-two years, it remains an incremental increase from the +5.1% last year. In fact, the jump in the average wage increase in 2024 was much larger as it was coming from 3.6% in 2023.”

On Yen strength and the potential influence of the spring wage negotiations on inflation, Garcia Herrero added:

“While the stronger Yen is alleviating cost push inflation, the economic outlook is deteriorating with increasing uncertainty on US policies. Furthermore, the expected incremental wage increase at the spring negotiation is unlikely to be regarded as additional evidence of strengthening virtuous circle between nominal wages and inflation yet.”

Markets now await the Bank of Japan Summary of Opinions on March 28 for further insights into policymakers’ views on wage growth, inflation, and US tariff policies.

A Reuters poll (March 4-11), conducted before the BoJ’s policy decision, showed:

• 18 out of 61 economists expect a 25-basis point hike in Q2 2025.
• 40 of 57 forecast a Q3 2025 policy move, with 26 out of 37 predicting a July hike.
• The likelihood of a July hike has increased from 59% in February to 70% in March.

USD/JPY Trends: FOMC Members and Tariff Developments in Focus

Late in the US session, traders should monitor FOMC member commentary and tariff developments. FOMC member support for a June rate cut, and multiple H2 2025 cuts could weaken US dollar demand. In this scenario, the USD/JPY pair may drop toward 148. However, optimism over the US labor market and concerns about tariffs driving inflation higher may push the pair toward 150.

On March 19, the FOMC Economic Projections showed rates would drop to 3.9% by year-end. Any deviation from this forecast could influence USD/JPY sentiment. Currently, markets expect a 60-bps Fed rate cut and a 25-bps BoJ hike, a setup that leans bearish for USD/JPY.

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

Aussie Dollar Under Pressure Amid Economic Jitters

Shifting focus to the AUD/USD pair, President Trump’s tariff policies continue to weigh on Aussie dollar demand. Given Australia’s trade-to-GDP ratio exceeds 50%, higher tariffs could disrupt global trade terms, dampening AUD/USD demand.

On Thursday, weaker labor market data may have reflected tariff-related economic uncertainty. With 20% of Australia’s workforce in trade-related jobs, slowing global demand could hurt wage growth, consumer spending, and inflation. A weakening labor market could lead to a more dovish RBA, pushing AUD/USD toward $0.62500.

However, easing tariff concerns may revive Aussie dollar demand, potentially driving the AUD/USD pair toward $0.63500.

On March 21, investors should also monitor stimulus-related news from Beijing, as China accounts for one-third of Aussie exports.

Potential AUD/USD Scenarios:

• Bullish: Easing trade tensions and fresh stimulus from Beijing may send the AUD/USD pair toward $0.63500.
• Bearish: Escalating tariffs and disappointing stimulus measures could send AUD/USD toward $0.62500.

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

Australian Dollar Daily Outlook: Fed Speakers and Tariffs

Later in the US session, FOMC member commentary and tariff developments may influence the US-Aussie rate differential. FOMC member support for an H1 2025 rate cut could narrow the rate differential in favor of the Aussie dollar. In this scenario, the AUD/USD pair could move above the 50-day EMA, bringing $0.63500 and the $0.63623 resistance level into play.

Conversely, concerns about inflation and positive sentiment toward the US economy may temper bets on a June Fed rate cut, sending AUD/USD toward $0.62500.

While Fed speakers will influence AUD/USD trends, an escalation in the US-China trade war remains the biggest downside risk.

Key Market Trends: Central Bank Policies and Trade Developments

Current forex market drivers include:

• USD/JPY: BoJ forward guidance post-February inflation data.
• USD/JPY and AUD/USD: FOMC commentary and US tariff developments.
• AUD/USD: Beijing’s stimulus news and US-China trade tensions.

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