Japanese Yen and Australian Dollar Forecast: BoJ, PMIs, Aussie Retail Sales in Focus

Japan Manufacturing PMI and USD/JPY Impacts

On Monday, December 2, Japan’s finalized Manufacturing PMI data may influence the USD/JPY pair. Preliminary figures show the Jibun Bank Manufacturing PMI dropped from 49.2 in October to 49.0 in November, signaling a deeper contraction.

A weaker Manufacturing PMI could dampen expectations for a December Bank of Japan rate hike. The manufacturing sector accounts for around 20% of Japan’s workforce and GDP, influencing sentiment toward the economic outlook.

Looser labor market conditions due to weaker demand for Japanese goods may dampen consumer spending. A pullback in consumer spending could soften inflationary pressures, potentially delaying a BoJ rate hike.

According to the preliminary survey, labor market conditions deteriorated across the manufacturing sector, with input prices (including labor costs) declining.

While the manufacturing sector data needs consideration, the Jibun Bank Services PMI (Wednesday) will likely have a greater impact on BoJ rate hike bets.

Expert Views on a December Bank of Japan Rate Hike

What do the experts think about a December BoJ rate hike?

Experts remain divided on the chances of a BoJ rate hike in December. Ivory Hill founder Kurt S. Altrichter commented on the Bank of Japan’s rate path, stating,

The Fed is not the most important central bank to watch right now. The Bank of Japan is. Japanese companies are passing rising labor costs to consumers at the fastest rate in 32 years, supporting the case for a BoJ rate hike.”

However, November’s Reuters poll showed 56% of economists predicting a December hike, up from 49% in the October poll.

Japanese Yen Daily Chart

Turning to the US session, the ISM Manufacturing PMI could influence US dollar demand. Economists forecast the Manufacturing PMI to increase from 46.5 in October to 47.5 in November.

A milder contraction across the manufacturing sector could drive the USD/JPY toward the 151.685 resistance level. Conversely, a weaker-than-expected Manufacturing PMI could fuel Fed rate cut bets, pulling the pair below 149, a crucial support level.

AUD/USD and Chinese Manufacturing PMI Outlook

Shifting to the AUD/USD, Aussie retail sales and manufacturing sector data from China will draw interest.

Economists expect retail sales to increase by 0.3% in October after rising 0.1% in September. Better-than-expected retail sales figures may boost Aussie dollar demand.

Consumer spending may fuel demand-driven inflation, potentially delaying an RBA rate cut. A less dovish RBA rate path may drive the AUD/USD pair toward $0.65500. Conversely, an unexpected slide in retail sales could boost RBA rate cut bets, pulling the pair toward $0.64500.

How will manufacturing data from China influence Aussie dollar demand?

Manufacturing PMI data from China will likely influence sentiment toward the Aussie economy. Economists expect the Caixin Manufacturing PMI to increase from 50.3 in October to 50.5 in November. A larger-than-expected Manufacturing PMI could suggest Beijing’s stimulus measures are supporting China’s economy.

Stronger demand from China could support the Aussie economy as China accounts for one-third of Aussie exports. Australia has a trade-to-GDP ratio of above 50%, with 20% of its workforce in trade-related jobs.

Other stats include company gross profits, job ad figures, and housing sector data. However, these will likely play second fiddle to retail sales and PMI figures.

Australian Dollar Daily Chart

In the US session, improving US manufacturing PMI data could diminish Fed rate cut bets, potentially pulling the AUD/USD toward $0.64500, a crucial support level in November.

Conversely, a deeper sector contraction could support bets on a December Fed rate cut, potentially driving the pair toward $0.65500.

Beyond the manufacturing PMI data, investors should monitor FOMC member commentary.

Reactions to the latest Personal Income and Outlays Report could further influence US dollar demand. The Core PCE Price Index increased by 2.8% year-on-year in October, up from 2.7% in September.

Monitoring Global Monetary Policy Speculation

Amid evolving rate expectations, traders should closely monitor monetary policy developments to navigate USD/JPY and AUD/USD volatility.

Stay ahead of the markets! Explore our detailed analysis of monetary policy developments and key economic indicators to refine your trading strategies. Discover more here.