Japanese Yen and Australian Dollar News: Inflation and China Policy Under Scrutiny

The BoJ Rate Path: How Will Producer Prices Influence the December Decision?

On Wednesday, December 11, Japan’s producer prices could influence USD/JPY trends and the Bank of Japan’s (BoJ) rate path. Economists expect producer prices to rise 3.4% year-on-year in November, mirroring October’s increase.

As a leading inflation indicator, hotter-than-expected producer prices may boost BoJ rate hike bets. Producers raise prices as demand increases, passing on costs to consumers. On the other hand, weaker-than-expected data could heighten uncertainty about the BoJ’s December policy decision.

Rising expectations for a BoJ rate hike may pull the USD/JPY pair toward the 149.358 support level. Conversely, waning bets on a BoJ move will likely push the pair toward the 156.884 resistance level.

Economic Signals Support BoJ Rate Hike Speculation

Meanwhile, the Reuters Tankan Index unexpectedly dropped from 5 points in November to -1 point in December. Economists consider the Index a barometer of Japan’s economy as it factors business sentiment across the manufacturing and services sectors.

The unexpected decline suggests a pullback in economic activity in Q4 2024, potentially dampening bets on a near-term BoJ rate hike.

Bank of Japan Forward Guidance Creates Policy Uncertainty

Last week, BoJ policymaker Toyoaki Nakamura fueled BoJ policy uncertainty by countering comments from BoJ Governor Kazuo Ueda. BoJ board member Nakamura doubted wage growth was sustainable and expected inflation to stay below the 2% target.

Weak wage growth could dampen consumer spending and demand-driven inflation. Inflation below target and a softer inflation outlook could lower expectations of a BoJ rate hike.

Nakamura’s comments contrasted with BoJ Governor Ueda, who hinted at the potential for a rate hike, citing the economy aligned with the Bank’s projections.

Expert Views on the Bank of Japan Rate Path

Seabridge Gold Investor, which tracks factors driving metal prices, remarked on recent economic data, saying,

“The Bank of Japan was given another reason to hike rates in a few weeks after October base pay came out, and it rose 2.7% y/o/y, up from 2.5% in the month before, and that is the fastest rate since 1992. The Trump Administration may get some help with a lower dollar.”

Friday’s wage growth figures came after Nakamura’s comments on inflation and wage growth.

Japanese Yen Daily Chart and US CPI Report: What to Watch

Turning our focus to Wednesday’s US session, the crucial US CPI Report will influence Fed rate cut bets and the USD/JPY pair. Economists expect the annual inflation rate to rise from 2.6% in October to 2.7% in November while predicting core inflation will remain at 3.3%.

Higher-than-expected inflation figures may sink expectations for a December Fed rate cut, driving the USD/JPY pair toward the 156.884 resistance level. However, softer inflation could cement a December Fed move and fuel bets on a Q1 2025 Fed rate cut. A more dovish Fed rate path could drag the pair below the 149.358 support level.

AUD/USD: Will Beijing Give the Aussie Dollar a post-RBA Boost?

Shifting the focus to another key currency pair, AUD/USD could face another choppy session. Investors should monitor updates from China’s Central Economic Work Conference.

China’s President Xi Jinping and senior policymakers will attend the meeting, setting policies for 2025. The two-day meeting follows Beijing’s announced plans to loosen monetary policy in 2025 and introduce fresh policy measures targeting consumption and broad-based demand.

Meaningful policy and stimulus measures may counter US tariff fears, potentially supporting the Aussie dollar. Rising demand from China, which accounts for one-third of Aussie exports, could bolster the Australian economy with its trade-to-GDP ratio of over 50%.

On December 9, AUD/USD ended the session up 0.80% on Beijing’s announcement. The pair could find similar demand should Beijing provide details of its policy goals.

During Tuesday’s RBA press conference, Governor Michele Bullock underscored the significance of demand from China, saying,

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

Explore detailed AUD/USD trends and trade data insights by clicking here.

Australian Dollar Daily Chart

The crucial US CPI Report could signal a wider-than-expected interest rate differential between the US and Australia in today’s US session. Hotter-than-expected US inflation could delay a post-December Fed rate cut. A Fed rate cut delay would contrast with rising expectations of multiple RBA rate cuts in 2025.

A wider-than-expected interest rate differential because of shifts in sentiment toward policy may pull the AUD/USD pair below the $0.63623 support level. Conversely, softer inflation trends may fuel bets on aggressive Fed rate cuts, potentially narrowing the interest rate differential.

A more dovish Fed rate path could push the AUD/USD pair through the upper trend line to target the $0.68925 resistance level.

Global Market Insights

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