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

Will Inflation and Labor Market Data Pressure the BoJ into Raising Rates?

On Friday, December 27, inflation and labor market data will influence the USD/JPY pair and potentially the Bank of Japan’s rate path. In December, the BoJ kept interest rates at 0.25%. BoJ Governor Kazuo Ueda stated that the Bank needed to assess wage growth trends further.

Economists expect Japan’s unemployment rate to remain at 2.5% in November. An unexpected fall in unemployment could boost wages, fueling consumer spending and inflationary pressures. Higher wages would support expectations for a Q1 2025 BoJ rate hike. Conversely, back-to-back rises in unemployment may further reduce bets on a Q1 2025 rate hike.

Meanwhile, inflation data is also crucial. Economists predict Tokyo’s CPI Ex Food and Energy will increase by 2.0% year-on-year in December, up from 1.9% in November. A higher reading would exceed the BoJ’s 2% target, supporting a more hawkish rate path. Conversely, softer inflation and a higher unemployment rate may allow the BoJ to delay rate hikes until Q2 2025.

Other stats include retail sales and industrial production data. However, barring marked deviations from forecasts, these will likely play second fiddle to the labor market and inflation data.

The Bank of Japan Summary of Opinions and Rate Path Outlook

Beyond the numbers, the BoJ’s Summary of Opinions will give critical insights into prerequisites for a rate hike. A dovish bias and weaker-than-expected data may sink bets on a Q1 2025 rate hike. A more dovish rate path outlook could drive the USD/JPY pair toward 160. Conversely, support for a first-quarter move could drag the pair below the 156.884 support level.

This week, Governor Ueda reiterated that future policy decisions would hinge on economic activity, prices, and financial conditions. He also stressed the importance of incoming data in assessing the timing of its next rate hike.

USD/JPY Trends: House Prices in Focus

Turning to the US session, house price data could influence the USD/JPY pair. Investors consider the housing market a litmus test of the US economy. Lower house prices may affect consumer confidence and spending, supporting a more dovish Fed rate path.

Rising bets on a January Fed rate cut may drag the USD/JPY pair below the 156.884 support level. Conversely, higher-than-expected house prices could drive the pair toward the 161.920 resistance level.

AUD/USD: Will China Data Boost Aussie Dollar Demand

Shifting our focus to the Australian dollar, China’s economic data will likely influence the AUD/USD pair. Economists forecast industrial profits to fall 5.0% year-to-date in November, compared to the same period in 2023.

A larger-than-expected fall could signal a pullback in job creation, potentially impacting consumer confidence and domestic demand. Conversely, a less marked decline in industrial profits could reflect the effectiveness of Beijing’s stimulus measures, signaling a pick-up in demand.

An improving demand environment could support the Aussie economy, with its trade-to-GDP ratio exceeding 50%. China accounts for one-third of Aussie exports. Such a scenario may drive the AUD/USD pair toward the $0.63 level. Conversely, a larger-than-expected fall in industrial profits could drag the pair below $0.62 to target the lower trend line.

In December, RBA Governor Michele Bullock underscored the importance of China’s economy, saying,

“US moves against China could affect Aussie trade terms with China, potentially impacting the Aussie economy.”

For a comprehensive analysis of AUD/USD trends and trade data insights, visit our detailed reports here.

Australian Dollar Daily Chart

US housing sector data may further influence sentiment toward US-Japan interest rate differentials. Softer house prices and dovish Fed comments may drive the AUD/USD pair toward $0.63. A return to $0.63 would bring the $0.63623 resistance level into sight.

Conversely, upbeat housing data and FOMC member calls to delay rate cuts could drag the pair toward the lower trend line.

Global Market Trends: Key Takeaways for Traders

Economic data and central bank policies remain central to market dynamics. Traders should closely monitor BoJ, Fed, and RBA communications alongside inflation and labor market updates for USD/JPY and AUD/USD pairs. For deeper insights, explore our full reports on these trends here.