Japanese Yen and Australian Dollar News: BoJ Inflation and IMF Forecasts in Focus

Bank of Japan’s Measures of Underlying Inflation in Focus

Bank of Japan’s underlying inflation measures, on Tuesday, October 22, will influence buyer demand for the Yen and the USD/JPY pair. The Bank of Japan’s measures of underlying inflation remained at 1.8% in August, below the Bank’s 2% target. A lower inflation rate may further reduce expectations of a Q4 2024 Bank of Japan rate hike.

The BoJ calculates underlying inflation by excluding temporary factors affecting consumer prices. The BoJ’s measure of underlying inflation will consider the national inflation figures from October 18.

According to the national inflation data, Japan’s core inflation rate eased from 2.8% in August to 2.4% in September. The BoJ’s measures of underlying inflation precede Friday’s inflation data for Tokyo and the October 31 interest rate decision.

Softer-than-expected inflation figures could push the USD/JPY toward 151 on a less hawkish BoJ rate path. Conversely, the USD/JPY could fall below 149.5 if the BoJ’s inflation measure exceeds the Bank’s 2% target.

Bank of Japan Forward Guidance

Bank of Japan policymakers continue to send cautious signals after Japan’s new prime Minister warned the country was not ready for more rate hikes. BoJ Board Member Seiji Adachi recently warned that the Bank should raise interest rates at a very moderate pace. Adachi also highlighted uncertainty about upcoming wage negotiations.

Similar wage hikes to 2024 could fuel household spending and demand-driven inflation, possibly boosting bets on a Q1 2025 rate hike.

Japanese Yen Daily Chart

On Monday, October 21, the USD/JPY retook the 150 handle. Later on Tuesday, the market focus will shift to Richmond Fed private sector PMIs for October. The PMIs could influence sentiment toward November and December Fed rate cuts.

Economists expect the more influential Richmond Fed Services Revenue Index to fall from -1 in September to -2 in October. Weaker data may drag the USD/JPY below 149.50. Conversely, better-than-expected figures could drive the USD/JPY toward 151.

IMF Growth Projections and the AUD/USD Outlook

Shifting focus to the AUD/USD pair, the IMF will release its World Economic Growth Projections. While the global projections require consideration, China’s growth forecasts could prove pivotal.

The People’s Bank of China and the Politburo have taken significant steps to stabilize China’s real estate market and bolster the economy. Projections for 5% (or higher) growth could drive Aussie dollar demand. An improving Chinese economy may boost demand for Aussie goods and the Australian economy, as it has a trade-to-GDP ratio above 50%.

In July, the IMF projected the Chinese economy to expand by 5.0% in 2024 and 4.5% in 2025. However, the Chinese economy grew by 4.5% in Q3 2024, well below Beijing and the IMF’s 5% target. The IMF’s consideration of the recent policy measures to support the Chinese economy could be crucial amidst mixed market reactions to Beijing’s maneuvers.

The AUD/USD could move toward $0.67 on expectations of 5% growth. However, a lower growth forecast than in July could pull the AUD/USD pair toward $0.66.

Australian Dollar Daily Chart

Later in the session, private sector PMI data for Richmond could influence the AUD/USD pair. Better-than-expected Richmond Fed Services PMI figures may temper bets on a December Fed rate cut, possibly pulling the AUD/USD toward $0.66. Conversely, weak figures could raise expectations of multiple Q4 2024 Fed rate cuts, potentially driving the AUD/USD toward $0.67.

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