Japanese Yen and Australian Dollar: Key Data to Impact BoJ and RBA Moves

Producer Prices to Impact December BoJ Rate Hike Expectations

On Wednesday, November 13, Japan’s producer prices influenced USD/JPY demand and sentiment toward the Bank of Japan rate path. Producer prices increased by 3.4% year-on-year in October, up from 3.1% in September.

Increasing producer prices could signal rising inflationary pressures. As demand rises, producers often raise prices, transferring increased costs to consumers. A higher inflation outlook may fuel speculation about a December BoJ rate hike.

Expectations for a December BoJ rate hike could pull the USD/JPY below 152.5. Conversely, rising bets on a BoJ hold could drive the pair toward 155.

Bank of Japan Forward Guidance Gives Producer Prices More Weight

The Bank of Japan left interest rates unchanged on October 31, aligned with market expectations. Furthermore, BoJ Governor Kazuo Ueda stated that the Bank would scrutinize incoming data for future policy decisions, suggesting future meetings will be live.

However, the Bank of Japan’s Summary of Opinions pointed to a shift concerning Japanese Yen weakness. The Summary of Opinions noted,

“There have been a significant number of reports from corporate executives of small and medium-sized firms that they welcome the retracement of the yen’s depreciation and that foreign exchange rates have a larger impact on business management than interest rates. Moreover, various survey results seem to suggest that households also welcome the yen’s retracement.”

Previously, the BoJ had signaled potential rate hikes to counter Yen weakness that may influence import prices and household expenses. The shift in focus left the Yen in policy uncertainty, supporting further weakness despite higher producer prices.

Japanese Yen Daily Chart

Shifting focus to the US dollar, the US CPI Report will be crucial for the Fed interest rate trajectory. Economists forecast the annual inflation rate to accelerate from 2.4% in September to 2.6% in October.

Hotter-than-expected inflation could temper bets on a December Fed rate cut, potentially driving the USD/JPY to 155. Conversely, a dip to 2% could fuel expectations of a December Fed rate cut, with the USD/JPY possible testing support at the critical 153.5 level.

Beyond the inflation figures, investors should also consider FOMC member views on the CPI Report and the Fed rate path. FOMC members Alberto Musalem and Jeffrey Schmid will speak after the CPI Report.

AUD/USD, Wage Growth, and the RBA Rate Path

Aussie wage growth trends will influence sentiment toward the RBA rate path, with focus on the AUD/USD. Economists predict wage growth will slow from 3.6% year-on-year in Q3 2024, down from 4.1% in Q2 2024. Weaker wage growth could curb consumer spending, potentially dampening inflationary pressures.

A softer inflation outlook might fuel speculation about a December RBA rate cut, potentially dragging the AUD/USD below $0.65. Conversely, an unexpected pickup in wage growth may boost consumer spending and inflation, supporting an AUD/USD return to $0.66.

Expert Views on the RBA Rate Path

Shane Oliver, AMP Head of Investment Strategy and Chief Economist, commented on November’s RBA policy decision, stating,

“RBA held at 4.35% citing inflation still too high, excess demand & still tight labour mkt. But it revised growth underlying infl forecasts down slightly. Guidance looks balanced. We continue to see first cut in Feb. Dec possible but needs very low Oct trimmed mean and higher unemp.”

Wage growth trends will give insights into labor market conditions, inflation, and the timing of an RBA rate cut.

Australian Dollar Daily Chart

In the US session, the US CPI Report will impact demand for the US dollar. Higher-than-expected inflation could pull the AUD/USD below $0.65 on lower expectations for a December Fed rate cut. Conversely, weaker US inflation could drive the AUD/USD through $0.66, an important resistance level.

Furthermore, investors should monitor FOMC member speakers, with reactions to the CPI Report likely to move the dial.

Traders are advised to stay alert for real-time updates on central bank commentary and data releases.