Japanese Yen and Aussie Dollar News: Wage Hikes Could Corner BoJ Into Policy Move

The Bank of Japan and a July Rate Hike

The Bank of Japan remains the only G7 central bank raising interest rates, keeping the focus on the USD/JPY pair. However, the timing of the BoJ’s next rate hike remains uncertain.

This week, average cash earnings and household spending data suggested a potential delay in further tightening until Q3 2024. Average cash earnings dropped from 4.4% year-on-year (YoY) in December to 2.8% in January. However, base pay increased by 3.1% YoY, the fastest rate in 32 years. The upswing in base pay shifts the focus to the spring wage negotiations (Shunto), which could be the final hurdle for a BoJ rate hike.

Last week, Rengo, Japan’s leading national trade union center, indicated that trade unions are pursuing a 6.09% wage hike, the highest in over three decades. This week, Japan’s Prime Minister Shigeru Ishiba underscored the significance of the spring wage negotiations, urging unions and companies to boost worker’s pay.

Three-decade-high wage hikes could corner the BoJ into an H1 2025 policy move. However, uncertainties about the potential effects of Trump’s tariff policies will likely need addressing before further tightening.

According to the latest Reuters poll (March 4-11):

• 90% of economists expect Trump’s tariff policies to affect Japan’s economy negatively.
• 61 of 62 economists predict the BoJ will hold rates at 0.5% in March.
• 18 out of 61 economists forecast a 25-basis point hike in Q2 2025.
• 40 of 57 expect a Q3 2025 policy move, with 26 out of 37 signaling a July hike.

While predictions for a Q2 2025 rate hike are similar to the February poll, expectations of a July hike have risen from 59% to 70%. Rising bets on a July policy move have fueled Japanese Yen demand, with the USD/JPY down 1.81% in March after sliding 2.93% in February.

Bank of Japan and the Yen Carry Trade

Rising bets on a July rate hike have also driven Japanese Government Bond (JGB) yields higher. Higher JGB yields and the stronger Yen have fueled speculation about another Yen carry trade unwind.

Despite the threat of a Yen carry trade unwind triggering market disruption, BoJ Governor Kazuo Ueda remained resolute in raising interest rates. On March 12, Governor Ueda dismissed concerns about rising JGB yields, saying:

“Long-term interest rates move on various factors. But the biggest determinant is the market’s forecast on the outlook for our short-term policy rate. It’s natural for long-term rates to move in a way that reflects such market forecasts.”

On Friday, March 14, investors should monitor updates from the spring wage negotiations and BoJ commentary. Higher-than-expected wage growth signals could boost bets on a Q2 2025 rate hike, dragging the USD/JPY pair toward 145. Conversely, disappointing updates may signal a less hawkish BoJ rate path, potentially pushing the pair toward 150.

USD/JPY Trends: US Consumer Sentiment in Focus

Later in the US session, the University of Michigan’s Survey of Consumers will influence US dollar demand. Weaker-than-expected consumer sentiment could signal a pullback in consumer spending. Downward trends in consumer spending could dampen inflationary pressures, supporting a more dovish Fed rate path. Rising bets on multiple 2025 Fed rate cuts could pull the USD/JPY toward the March 11 low of 146.537.

Conversely, rising consumer sentiment and higher inflation expectations could curb Fed rate cut bets, potentially driving the USD/JPY pair toward the 149.358 resistance level.

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

Tariff Uncertainty, Beijing’s Stimulus, and the RBA Rate Path

While USD/JPY trends and the BoJ’s monetary policy outlook remain key for the markets, near-term AUD/USD trends hinge on Trump’s tariff policies and Beijing.

Trump has already raised tariffs by 20% on Chinese goods and introduced sweeping 25% tariffs on steel and aluminum. Beijing has vowed to retaliate, with the Foreign Ministry stating:

“China will take all necessary measures to safeguard its rights, interests. If US insists on suppressing China, China must resolutely counter it.”

Given that China accounts for one-third of Aussie exports, a tit-for-tat trade war could impact the Aussie economy. With a trade-to-GDP ratio above 50%, a waning economy may boost expectations of an H1 2025 RBA rate cut. A more dovish RBA rate path would likely pressure the AUD/USD pair.

However, stimulus measures from Beijing boosting demand and domestic consumption could mitigate tariff risks. Stronger demand from China may temper RBA rate cut bets, driving Aussie dollar demand.

Potential AUD/USD trends include:

• Bullish Scenario: A de-escalation in the US-China trade war and fresh stimulus from Beijing may push the AUD/USD pair above the 50-day EMA and $0.63623 resistance level.
• Bearish Scenario: Escalating trade tensions and underwhelming stimulus efforts could weaken the Aussie dollar, 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: Consumer Sentiment and the Fed

Later in the US session, the Univeristy of Michigan numbers could affect the US-Aussie interest rate differential. A weaker-than-expected consumer sentiment could fuel Fed rate cut bets, narrowing the rate differential in favor of the Aussie dollar. Under this scenario, the AUD/USD pair could break above the 50-day EMA, bringing the $0.63623 resistance level into play.

However, a higher consumer sentiment reading and higher inflation expectations may temper expectations of a June Fed rate cut. A widening rate differential, favoring the US dollar, could drag the AUD/USD pair toward $0.62.

Market Trends: Central Bank and Trade Policies in Focus

Key macroeconomic drivers influencing currency markets include:

• BoJ Forward Guidance: Wage growth will influence the BoJ’s policy outlook.
• US Economic Data and Tariff Policies: The Consumer Sentiment Report and US trade policy remain central to currency market movements.
• AUD/USD Sentiment: Beijing’s stimulus efforts and US-China trade tensions will influence the RBA rate path and Aussie dollar trends.

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