Japanese Yen and Australian Dollar News: BoJ and RBA Policy Under Scrutiny

Japan Political Impasse Puts the Bank of Japan in Focus

On Monday, November 4, Japan’s political impasse will remain a critical factor influencing the USD/JPY and sentiment toward the Bank of Japan’s rate path.

On October 27, the Liberal Democratic Party (LDP) – Komeito coalition lost its majority in a snap election gamble. Political uncertainty has shrouded Japan since the election result. The LDP is in talks with smaller parties to form a new government. However, investor bets on a Q4 2024 BoJ rate hike have fallen as markets consider possible policy shifts under a new government.

A lack of progress by the LDP to form a government could further depreciate the Japanese Yen over political uncertainty. A weaker Yen could fuel speculation about government interventions and a December interest rate hike. Import prices may increase because of a weaker Yen, impacting household spending and the economy as private consumption accounts for over 50% of GDP.

Bank of Japan’s Insights on the Yen and the Political Impasse

In June, BoJ Deputy Governor Ryozo Himino highlighted the possible influence of a weaker Yen on the BoJ’s rate path, stating,

“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.”

On October 31, Bank of Japan Governor Kazuo Ueda remarked on Japan’s general election result, stating,

“Recent political developments alone won’t directly affect our price forecasts. But if there are big changes in policy, we will revise our forecasts as needed taking into account the impact of such moves.”

Japanese Yen Daily Chart

Turning to the US session, factory orders may influence US dollar demand. A larger-than-expected fall in factory orders may raise concerns about the economy, dragging the USD/JPY toward 151.5. Conversely, an unexpected rise in factory orders could temper bets on a December Fed rate cut. A less dovish Fed rate path could push the USD/JPY toward 154, last week’s key resistance level.

Aussie Inflation, the Labor Market, and the RBA

Turning to the AUD/USD pair, the TD-MI Inflation Gauge and ANZ-Indeed Job Ad figures will draw interest.

Economists expect the TD-MI Inflation Gauge to increase by 0.2% in October, following a 0.1% rise in September. A softer inflation figure could fuel investor bets on a Q4 2024 RBA rate cut. Expectations for a Q4 2024 RBA rate cut could pull the AUD/USD toward $0.65. Conversely, hotter inflation data and falling bets on a Q4 rate cut may push the pair toward $0.66.

However, labor market data is also a focal point for the RBA. Upward trends in job ads could signal higher wages, which may fuel consumer spending and inflationary pressures. A higher inflation outlook may sink bets on a Q4 rate cut. Economists expect job ads to increase by 2.0% in October, up from 1.6% in September.

Expert Views on Aussie Inflation and 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’s Standing Committee National People’s Congress in Focus

On Monday, investors should also track updates from the National People’s Congress Standing Committee (NPCSC) meeting. Markets expect new stimulus measures to bolster demand, boosting the Aussie economy and Aussie dollar demand.

Given that China accounts for a third of Australia’s exports, increased demand from China could improve Australia’s trade terms. Australia has a trade-to-GDP ratio of over 50%.

Australian Dollar Daily Chart

In Monday’s US session, factory orders may also impact demand for the AUD/USD. A jump in factory orders may signal a resilient US economy, easing expectations for a December Fed rate cut. A less dovish Fed rate path may drag the AUD/USD toward $0.65. Conversely, a larger-than-expected fall in factory orders could raise bets on a December Fed rate cut, driving the pair to $0.66.