Japanese Yen and Aussie Dollar News: Will the BoJ Deliver a Hawkish Rate Hike?

USD/JPY: Will Inflation and Services PMI Trigger a Hawkish BoJ Rate Hike?

On Friday, January 24, Japan’s national inflation and Services PMI put the USD/JPY pair and the Bank of Japan under the spotlight.

Japan’s core inflation rate rose from 2.7% in November to 3.0% in December, exceeding the BoJ’s 2% target. Headline inflation accelerated to 3.6%.

Japan’s services PMI data also bolstered the case for a BoJ rate hike and hawkish rate path. The Jibun Bank Services PMI increased from 50.9 in December to 52.7 in January. The services sector reported stronger employment growth and input prices.

The employment and price sub-components will likely draw the BoJ’s attention, as tighter labor market conditions and higher wage-driven input prices could fuel household spending and demand-driven inflation.

The latest inflation and Services PMI numbers suggest a strong case for a BoJ rate hike later today. However, the data may also enable the Bank to signal a more hawkish rate path, potentially more significant than a highly anticipated rate hike.

USD/JPY Trends: US Services PMI in Focus

Turning to the US, the S&P Global Services PMI will influence sentiment toward the Fed rate path. Economists forecast the Services PMI to slip from 56.8 in December to 56.5 in January.

A larger-than-expected fall may raise expectations for a more dovish Fed rate path. A narrowing in the US-Japan interest rate differential, favoring the Yen could drag the USD/JPY below the 50-day Exponential Moving Average (EMA). A break below the 50-day EMA could bring the 200-day EMA and the 150 level into sight.

However, the BoJ’s monetary policy decision and outlook will likely impact USD/JPY price trends more. A hawkish BoJ rate hike would likely support a USD/JPY drop toward 150.

Conversely, an unexpected rise in the US Services PMI and a BoJ rate hike-and-hold approach could drive the USD/JPY pair toward 160.

AUD/USD: Services Sector Slows as Inflation Looms

Regarding the Australian dollar, Australia’s Judo Bank Services PMI dropped from 50.8 in December to 50.4 in January, while the manufacturing sector contracted at a less marked pace.

The AUD/USD softened in response to the drop in services sector activity, which accounts for approximately 65% of Australia’s GDP. Significantly, upward trends in input and output prices may affect the RBA’s post-February rate path.

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on the PMI data, stating,

“Aust Dec composite PMI +0.1pt to a still soft 50.3 with services down and manu up. Emp remained -ve. Output & input prices rose, esp the latter mainly due to manu input costs. Output prices remain around their pre-covid range, so it shouldn’t stop a Feb rate cut if Dec CPI is good.”

Australia’s crucial inflation numbers are due out on January 29. Economists expect the RBA Trimmed Mean CPI to rise 3.4% year-on-year in Q4 2024, down from 3.5% in Q3 2024. A fall toward the RBA’s 2%-3% target range would cement a February rate cut.

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 marked fall in the US Services PMI could support a near-term Fed rate cut. A more dovish Fed rate path may drive the AUD/USD pair through the crucial $0.63 threshold.

Conversely, an unexpected rise in the Services PMI could dampen bets on an H1 2025 Fed rate cut. A more hawkish Fed rate path could widen the US-Aussie interest rate differential, favoring the US dollar. A more hawkish Fed stance and dovish RBA rate path may drag the AUD/USD pair toward $0.62 and the upper trend line of the descending channel.

Global Market Trends: Central Banks in Focus

Central bank policies remain pivotal for currency trends. The BoJ’s upcoming rate decision and forward guidance are key for the USD/JPY pair, particularly as fears of a hawkish Fed rate stance subside. Meanwhile, Aussie dollar demand hinges on next week’s inflation data and RBA rate path.

Broader themes, including US tariffs and China’s stimulus strategies, will further dictate global market sentiment.

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