Japanese Yen and Aussie Dollar News: Will BoJ Tighten Again? Inflation, PMI in Focus

BoJ Rate Hike Bets Strengthen as USD/JPY Reacts to Inflation, Services PMI

The Japanese Yen has gained momentum as expectations for a Bank of Japan (BoJ) rate hike grow. Economic indicators and US trade policies have fueled demand. Upcoming Japanese data could reinforce this trend, adding pressure on the USD/JPY pair.

On Friday, February 21, inflation data put the USD/JPY pair in focus. Japan’s core inflation rate rose to 3.2% in January, up from 3% in December. Headline inflation and the inflation rate Ex-Food and Energy also accelerated, boosting bets on another Bank of Japan rate hike.

The inflation data follow a series of economic indicators—such as wage growth, producer prices, GDP, and household spending—that support tighter monetary policy. Bank of Japan Governor Kazuo Ueda and Deputy Governor Himino recently voiced support for further rate hikes if the economy and prices align with the Bank’s projections.

Later on Friday, Japan’s services sector will be in focus. Economists forecast the Jibun Bank Services PMI to dip from 53.0 in January to 52.2 in February. While a lower PMI could dampen rate hike expectations, strong employment and price growth could still support a tightening stance.

Accounting for over 70% of Japan’s GDP, higher employment and rising prices might reinforce the case for a second rate hike. Conversely, a sharp drop in the headline PMI – along with downward trends in employment and prices – could delay another rate hike.

Beyond Friday’s critical data, US tariff policies could impact Japanese Yen demand. Rising global trade tensions have driven demand for the Japanese Yen as a safe-haven currency. Boj rate hike bets and safe haven demand have impacted the USD/JPY pair.

Expert Views on Japan’s Economy and BoJ Rate Path

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, commented on Monday’s Q4 GDP report from Japan:

“Japanese Dec qtr GDP +0.7%qoq/+1.2%yoy, stronger than expected with firm final demand, consumption up slightly (rather than down as expected) with net exports adding to growth and inventory detracting. Will keep BoJ on track for a gradual hiking in rates.”

The USD/JPY pair dropped below 150 on February 20 as investors raised expectations of a second 2025 BoJ rate hike. A Reuters poll published on Thursday found:

• All 61 economists expect the BoJ to keep rates unchanged in March.
• 19 of 61 predict at least one 25-basis point rate hike in Q2 2025.
• 38 of 58 expect a rate hike in July or September.

USD/JPY Trends: US Services PMI and Fed Rate Outlook

Shifting to the US session, the S&P Global Services PMI will influence the Fed rate path and US dollar demand. Economists forecast the Services PMI to rise from 52.9 in January to 53.0 in February.

A sharper rise in the headline PMI, higher employment, and rising prices may further dampen expectations of an H1 2025 Fed rate cut. A more hawkish Fed stance may support USD strength, pushing USD/JPY toward the 200-day EMA. A break above the 200-day EMA could bring the 50-day EMA into play.

Conversely, weaker PMI data may retrigger expectations of an H1 2025 Fed move, potentially pulling the pair below the 149.358 support level, with 148 as the next price target.

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

AUD/USD: Private Sector PMIs and RBA Rate Expectations

Since Tuesday’s RBA rate cut, Aussie economic indicators have challenged bets on further policy easing. Recent AUD/USD trends highlight how economic data has influenced expectations for RBA policy.

On February 21, Australian private sector PMI data could further lower RBA rate cut expectations. The S&P Global Services PMI increased from 51.1 in January to 51.2 in February. The February survey revealed:

• Staffing levels increased across the services sector.
• Input cost inflation accelerated, with firms citing rising wage costs.
• Output prices rose at a softer pace in February as firms resisted passing costs to consumers.

Although output price trends leave a second H1 2025 RBA rate cut on the table, the labor market, wage trends, consumer spending, and US-China trade risks remain key drivers.

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 Services PMI, rising employment, and increasing prices could sink Fed rate cut bets. A widening of the US-Aussie interest rate differential, favoring the US dollar, may push AUD/USD toward the $0.63623 support level.

Conversely, a lower PMI, drop in job creation, and falling prices could narrow the rate gap, potentially driving AUD/USD toward the 200-day EMA and $0.65.

Beyond the economic data, US trade policies will play a crucial role. Given Australia’s trade-to-GDP ratio exceeds 50%, sweeping tariffs could impact Aussie exports, weighing on AUD demand.

Market Trends: Central Banks and Trade Policies in Focus

Key macroeconomic drivers influencing currency markets include:

• Bank of Japan Forward Guidance: Reactions to recent economic indicators could be crucial for USD/JPY trends.
• US Services PMI and Tariff Developments: A pickup in services sector activity and sweeping US tariffs could signal a more hawkish Fed, boosting US Dollar demand.
• AUD/USD Outlook: A data-dependent RBA exposes the Aussie dollar to increased volatility.

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