Japanese Yen and Australian Dollar Forecast: Services PMI and Aussie GDP in Focus

Japan Services PMI: Crucial to the December BoJ Policy Decision

The Bank of Japan’s (BoJ) December policy decision: Will Japan’s Services PMI lead to a significant USD/JPY move? Finalized Services PMI numbers will influence USD/JPY trends as the BoJ’s December policy meeting looms.

According to the preliminary report, the Jibun Bank Services PMI increased from 49.7 in October to 50.2 in November, signaling a return to growth ( PMI > 50).

An upward revision to the Services PMI may raise investor expectations for a 25-basis point December BoJ rate hike. The services sector accounts for over 70% of Japan’s GDP and is critical for inflation and BoJ policy decisions.

While the headline PMI needs consideration, investors must study the price trends. Rising costs and increased prices charged may fuel inflationary pressures, potentially supporting a more hawkish BoJ stance.

November’s preliminary survey revealed rising average cost burdens, with firms increasing prices charged. The price trends and the fastest job creation rate since July supported bets on a December rate hike. Upward revisions may further bolster December policy move bets.

Bank of Japan Governor Kazuo Ueda recently underscored the importance of services sector price trends, saying,

“October is a month when service price revisions are concentrated in Japan, so we must scrutinize data carefully.”

On Wednesday, investors should also monitor BoJ commentary after Governor Ueda’s remarks who suggested further rate hikes are likely if economic data align with forecasts.

Rising expectations for a December rate hike could strengthen the yen, pulling USD/JPY toward 148.5. However, calls for a delay in hiking rates to consider more key economic data might drive the USD/JPY toward 151.5.

Expert Views on a December Bank of Japan Rate Hike

Will the BoJ hike rates in December and is another market disruption looming?

Economists remain divided on a December rate hike, with some expecting the BoJ to assess another round of data before hitting the hike button.

On Friday, Shigeto Nagai of Oxford Economics reportedly emphasized the uncertainty surrounding the rate path, saying that the BoJ may wait for another round of data before hiking rates.

November’s Reuters poll showed 56% of economists predicting a December hike, up from 49% in the October poll. The results were also inconclusive for investors wanting more decisive views on the BoJ rate path.

Japanese Yen Daily Chart

Turning to the US session, labor market and services sector data will likely affect US dollar demand and the USD/JPY pair. Stronger-than-expected ADP jobs data and a higher ISM Services PMI could lower December Fed rate cut expectations.

Falling bets on a December Fed rate cut may drive the USD/JPY pair above 151.5, a key resistance level. On the other hand, weaker data could bolster rate cut bets, pulling the pair toward 148.5, a crucial support level.

AUD/USD, GDP Numbers, and China

Beyond USD/JPY, the AUD/USD faces increasing scrutiny. Will today’s data retrigger bets on a Q1 2025 RBA rate cut or support further delays at the expense of households?

Key economic indicators include Q3 GDP and service sector PMI data from China.

Economists forecast Australia’s economy will expand by 0.4% quarter-on-quarter in Q3 2024, up from 0.2% in Q2 2024.

Stronger-than-expected growth may enable the RBA to delay interest rate cut discussions further. A less dovish RBA rate path may push the AUD/USD pair toward $0.65500, a crucial resistance level. However, weaker growth could refuel expectations for a Q1 2025 rate cut, potentially pulling the pair below $0.64500, a key support level.

How does China’s economy affect the Aussie economy, the RBA rate path, and Aussie dollar demand?

While Aussie data is crucial, China’s economy also plays a pivotal role in AUD/USD trends. Economists forecast the Caxin Services PMI to increase from 52.0 in October to 52.5 in November.

Improving services sector activity may boost job creation and private consumption. Rising demand could boost Aussie trade terms as China accounts for one-third of total exports. Additionally, Australia has a trade-to-GDP ratio of above 50%, highlighting the significance of China’s demand on the Aussie economy.

Better-than-expected data would support an AUD/USD move toward $0.65500. Conversely, weaker-than-expected data might drag the pair below $0.64500.

Australian Dollar Daily Chart

In the US session, the ADP and ISM Services PMI reports will affect AUD/USD trends. Upbeat US data could lower bets on a December Fed rate cut, supporting an AUD/USD fall toward $0.64500. Conversely, weaker labor market data and a slide in services sector activity may boost December rate cut bets, potentially driving the AUD/USD pair toward $0.65500.

Beyond the data, investors should also FOMC member commentary. Reactions to the US data might dictate Fed rate cut bets and US dollar demand.

Monitoring Global Monetary Policy Speculation

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