Japanese Yen and Australian Dollar News: Japan Election and China Woes

Japan’s General Election and the Bank of Japan

It is a pivotal week ahead, with the Bank of Japan’s monetary policy decision likely to impact USD/JPY price trends. However, Japan’s general election on Sunday, October 27, could prove crucial for the BoJ and its plans for monetary policy normalization.

New Prime Minister Shigeru Ishiba called a snap general election after securing the Liberal Democratic Party (LDP) leadership. On Sunday, the LDP-Komeito coalition fell short of the 233 seats needed for a majority. The result means the LDP coalition needs to negotiate partnerships with lesser parties, potentially impacting party policies.

The Bank of Japan could face another test if the LDP allies with parties favoring loose monetary policy to ease the cost of living, a key concern for voters. For the Bank of Japan, its pursuit for monetary policy normalization could be tested.

Shigeru Ishiba will reportedly wait until the final results before considering possible parties for a coalition. The outcome of these negotiations could be crucial for the USD/JPY. Regardless, the political uncertainty will likely dampen buyer appetite for the Japanese yen.

An LDP-Komeito coalition with parties favoring the BoJ’s policy goals could support a USD/JPY drop below 151.5. Conversely, the USD/JPY could break above 155 if the LDP-Komeito coalition forms partnerships pushing for loose monetary policy.

Japanese Yen Daily Chart

Later in the Monday session, the Dallas Fed Manufacturing Index will require consideration. Upbeat numbers could boost demand for the US dollar, potentially pushing the USD/JPY toward October 23’s high of 153.184. Conversely, an unexpected fall may pull the USD/JPY below 151.5, a crucial support level.

Beyond the economic calendar, the US Presidential Election will influence USD/JPY trends. The latest polls show Kamala Harris leading Donald Trump by 1.3 points, down from 2.1 points on October 18. Speculation around a potential Trump win could drive US dollar demand, supporting a USD/JPY move toward 155.

China Industrial Profits Send Warning Signals

On Sunday, October 27, industrial profit figures from China disappointed, potentially impacting demand for the AUD/USD pair. From January to September, industrial profits fell 3.5% year-on-year after increasing by 0.5% in August.

The fall in profits highlighted weakening demand, aligning with recent trade data. China’s exports increased by 2.4% year-on-year in September, materially lower than 8.7% in August.

Increasing concerns about China’s economy could pull the AUD/USD toward $0.65500, a crucial support level. However, Sunday’s data could pressure Beijing to announce more policy measures to bolster the economy.

China is vital to Australia’s economy, accounting for one-third of Aussie exports. Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs. Weakening demand could strain the Aussie economy, the labor market, and, ultimately, the Aussie dollar.

While Sunday’s figures could curb Aussie dollar demand, stimulus measures from Beijing, targeting consumption, could counter the effects of the data. Government support to drive private consumption through fresh measures may push the AUD/USD through $0.66500.

Expert Views on China’s Economy and Deflation

Jeffrey Snider, Eurodollar University channel host, remarked on China’s industrial profits, stating,

“Without any revenue growth, China’s industrial firms are having to cut back on everything just to minimize profit declines. Cutting inventories and materials, hiring fewer workers (youth unemployment). It just means more deflation beyond the serious levels experienced already.”

Australian Dollar Daily Chart

In Monday’s US session, Dallas Fed Manufacturing figures could give insights into the US economy. Better-than-expected numbers could pull the AUD/USD toward $0.65500 on falling expectations of a December Fed rate cut.

Conversely, an unexpected decline may test investor bets on a soft US economic landing, potentially driving the AUD/USD toward $0.66500, a significant resistance level.

Aside from US economic indicators, US Presidential Election-related news could also move the dial. A Trump victory may affect global trade terms, a possibly negative scenario for the Aussie economy and the Aussie dollar.

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