Japanese Yen and Australian Dollar News: BoJ and China CPI in Focus

Bank of Japan Summary of Opinions and the USD/JPY Outlook

On Monday, November 11, the Bank of Japan’s Summary of Opinions will likely influence the USD/JPY pair and sentiment toward the Bank of Japan rate path.

The BoJ kept the interest rate at 0.25% on October 31 but left a December interest rate hike on the table. Significantly, the BoJ noted reducing risks to the US economy, supporting bets on a potential December rate hike. The BoJ also stated that inflation, wages, and the economy have aligned with its forecasts.

The Summary of Opinions might give additional insights into the conditions supporting an interest rate hike. Demand for the Japanese Yen could surge if board members see a Trump election victory favoring a more hawkish BoJ rate path.

Markets expect Trump’s policies to result in fewer Fed rate cuts, which could allow the BoJ to hike rates with reduced risk of market disruption. A less dovish Fed rate path may leave the US and Japan interest rate differential wider than previously anticipated. A wider-than-expected interest rate differential might push the USD/JPY higher.

In July, the BoJ rate hike and cut to Japanese government bond (JGB) purchases triggered a Yen carry trade unwind, pulling the USD/JPY below 140. However, Trump’s election victory subsequently sent the USD/JPY to the 154 mark before easing back. A weaker Japanese Yen might give the BoJ another reason to hike rates.

In June, BoJ Deputy Governor Ryozo Himino discussed the negative effects of a weaker Yen on Japan’s economy, saying,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Japanese Yen Daily Chart

Turning to the US dollar, the focus will likely shift to the upcoming CPI Report. Hotter-than-expected inflation figures could temper bets on a December Fed rate cut, supporting a USD/JPY climb toward last week’s high of 154.708.

Before Wednesday’s CPI Report, investors should monitor FOMC member speeches. Rising Fed support to maintain interest rates steady in December could drive US dollar demand. Conversely, support for a December Fed rate cut may drag the USD/JPY toward 150, a crucial support level.

China Inflation Highlights Demand Woes Potentially Impacting Aussie Dollar Demand

Turning attention to the AUD/USD pair, China’s inflation figures from the weekend will likely influence Aussie dollar demand.

Consumer prices declined by 0.3% in October after holding steady in September, indicating weaker demand. Producer prices also signaled lower demand, falling at a faster rate in October.

Weaker demand could adversely affect the Aussie economy as China accounts for one-third of Australian exports. Notably, Australia has a trade-to-GDP ratio of above 50%, with 20% of its workforce in trade-related jobs. Weaker labor market conditions could reduce private consumption, easing inflationary pressures. Softer inflation may support a December RBA rate cut.

On Friday, November 8, the AUD/USD tumbled 1.49% over disappointment about China’s stimulus measures. Beijing held back from rolling out stimulus targeting consumer demand.

Expert Views on Aussie Inflation and the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver commented on China’s policy announcement, stating,

“China: RMB10trn new local gov debt swap over 3-5yrs, RMB2.8trn next 12 mths (~2.2% of GDP). This frees local govs to boost spending & is around prior reports. Absence of other stimulus eg for consumption was disappointing but Fin Min said “actively planning” (waiting for Trump?)”

Australian Dollar Daily Chart

Shifting our focus to the US session, traders should monitor FOMC member commentary before Wednesday’s upcoming US CPI Report.

Calls to hold interest rates until Q1 2025 could fuel US dollar demand, potentially pulling the AUD/USD toward $0.65. Conversely, support for a December Fed rate cut might drive the pair through $0.66, a key resistance level.

Traders should stay alert to real-time data and central bank commentary. Keep updated with our timely insights for strategic advantage.