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

Japan’s Retail Sales Temper BoJ Rate Hike Bets

On Thursday, October 31, retail sales figures from Japan likely dampened investor expectations of a Q4 2024 BoJ rate hike. Retail sales increased by 0.5% year-on-year in September, down from 3.1% in August.

Retail sales trends are crucial for the Bank of Japan and its monetary normalization aspirations. Weaker retail sales could dampen demand-driven inflation, potentially delaying rate hikes until Q1 2025.

However, the figures failed to drive demand for the USD/JPY pair as the focus shifted to the upcoming Bank of Japan monetary policy decision.

Other economic indicators included preliminary industrial production, which increased by 1.4% in September, partially reversing a 3.3% slump in August. However, the uptick in production will unlikely influence the BoJ rate path. Industrial production was still down 2.8% year-on-year despite the September increase.

Bank of Japan’s Monetary Policy Decision and Forward Guidance: Key for the Yen

Later in the Thursday session, the Bank of Japan will deliver its monetary policy decision. Economists expect the BoJ to maintain interest rates at 0.25%, placing greater emphasis on its monetary policy outlook. The BoJ’s view on the general election result and influence on the interest rate path could be crucial.

On Sunday, October 27, the Liberal Democratic Party (LDP) – Komeito coalition fell short of the required 233 seats for a majority. The LDP could face pressure to support an accommodative BoJ in forming a government. Cost of living remains a central issue amongst voters. Consequently, market bets on a Q1 2025 BoJ rate hike could dampen, possibly reducing demand for the Japanese Yen.

In a recent Reuters poll, 25 of 49 economists predict the BoJ will keep its 0.25% interest rate through Q4 2024. Furthermore, 39 of 45 economists expect the BoJ to raise interest rates to 0.5% by March 2025. However, the poll was taken before the general election.

Japanese Yen Daily Chart

Shifting to the US session, the Personal Income and Outlays Report will influence US Dollar demand. Upward personal income/spending and the Core PCE Price Index trends could sink bets on November and December Fed rate cuts. Expectations for a less dovish Fed rate path could drive the USD/JPY above 154, a crucial resistance level this week.

Conversely, softer inflation and weak personal income/spending figures could raise bets on multiple Q4 2024 Fed rate cuts. A more dovish Fed rate path could pull the USD/JPY below 152.5.

Aussie Retail Sales Influence the RBA Rate Path

Shifting to the AUD/USD pair, Aussie retail sales figures may influence the RBA rate path. Retail sales increased by 0.1% in September, weaker than a 0.7% rise in August. Reduced consumer spending could dampen demand-driven inflation, supporting a Q4 2024 RBA rate cut.

Significantly, the retail sales figures followed Wednesday’s Aussie inflation data. While headline inflation softened sharply, underlying inflation remained above the RBA’s 2-3% target range.

Expert Views on the RBA Rate Path

AMP Head of Investment Strategy and Chief Economist Shane Oliver remarked on Wednesday’s inflation figures, stating,

“The Mthly CPI Indicator shows the fall in inflation continued in Sept with headline infl of 2.1%, trimmed mean inflation falling to 3.2%yoy & the proportion of CPI items with infl<2%yoy way above those with inflation >3%yoy. If this continues in Oct it could drive a Dec RBA cut.”

China Private Sector PMIs Put the Aussie Economy in Focus

Later this morning, NBS private sector PMIs could affect sentiment toward the Australian economy. Upward trends in the Manufacturing PMI may signal a pickup in demand, potentially boosting the Aussie economy.

Australia has a trade-to-GDP ratio of over 50%, with one-third of its exports bound for China. Economists predict the NBS Manufacturing PMI will increase from 49.8 in September to 50.0 in October.

Australian Dollar Daily Chart

In Thursday’s US session, inflation will be the focal point. A softer Core PCE Price Index could raise expectations for Fed rate cuts in November and December. A more dovish Fed rate path could drive the AUD/USD toward $0.66. Conversely, sticky inflation could dampen bets on a December Fed rate cut, potentially dragging the AUD/USD below $0.65550.

Stay ahead in the markets with our expert insights and real-time data analysis. Track real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly.