Japanese Yen and Australian Dollar News: Japan Inflation Hits 2.9%, PBoC Next

Inflation Rises: What Japan’s Inflation Spike Means for USD/JPY

On Friday, December 20, inflation figures from Japan put the USD/JPY and the Bank of Japan under watch. The annual inflation rate accelerated from 2.3% in October to 2.9% in November, supporting a more hawkish BoJ rate path. The BoJ’s preferred inflation rate ex-food and energy climbed to 2.4%, also moving further above the Bank’s 2% target.

November’s inflation report follows the Bank’s decision to keep interest rates at 0.25% on Thursday, December 19. BoJ Governor Kazuo Ueda stated policy adjustment would continue if the economy and price outlook aligned with its projections. The BoJ Governor also emphasized the need for more wage data before making a move.

However, the USD/JPY has returned to the 157 mark. The weaker Japanese Yen and November’s inflation numbers could pressure the BoJ to hike rates. Import prices increase as the Yen weakens, raising living costs, while squeezing household spending. The BoJ previously warned about hiking rates to address the effect of a weaker Yen on import prices.

Expert Views on the Bank of Japan Rate Path

Natixis Asia Pacific Chief Economist Alicia Garcia Herrero underscored the BoJ’s unwillingness to raise rates before Thursday’s decision, stating,

“Continued inflation-wage virtuous circle should have supported a hike, but politics getting in the way. […] All in all, the virtuous circle between inflation and wages has made further progress recently, clearing the way for a hike, but the BoJ does not seem so ready to go ahead, at least not just now. The Fed’s hawkish tone yesterday could make a pause more risky in terms of a further depreciation of the Yen.”

USD/JPY Trends: US Personal Income and Outlays Report Crucial

Turning to the US session, the all-important US Personal Income and Outlays Report will influence USD/JPY trends. Economists expect the Core PCE Price Index to move higher in November, supporting the case for fewer Fed rate cuts in 2025.

Upward trends in inflation, coupled with robust personal income and spending, could drive the USD/JPY pair toward the 161.920 resistance level. Conversely, softer inflation could ease US dollar demand, potentially pulling the pair through the 156.884 support level to target 150

Other economic indicators include finalized consumer sentiment numbers. However, these will likely play second fiddle to the Personal Income and Outlays Report.

AUD/USD: Housing Credit and the PBoC in Focus

Shifting our focus to the AUD/USD pair, private sector credit trends drew interest early in the session. Private sector credit increased by 0.5% month-on-month in November after rising 0.6% in October.

Weaker demand for credit could signal softer consumption, potentially weighing on the Aussie economy. While inflation has cooled, the RBA has maintained its cash rate at 4.35%. The higher interest rate environment could further impact credit demand, dampening consumer spending and inflation.

A softer inflation outlook may bolster the case for a Q1 2025 RBA rate cut, weighing on Aussie dollar demand.

Turning to China, the People’s Bank of China (PBoC) will announce Loan Prime Rates (LPR). Economists expect the PBoC to maintain the LPRs at 3.1% and 3.6%, respectively. An unexpected rate cut could boost domestic consumption, benefiting the Aussie economy as China accounts for one-third of Aussie exports.

Improving trade terms could boost Aussie dollar demand.

This month, RBA Governor Michele Bullock reiterated the significance of China’s economy, stating,

“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

In Friday’s US session, higher inflation and upward personal income/spending trends could further pressure the AUD/USD. A hotter-than-expected Core PCE Price Index may drag the pair below the lower trend line, bringing $0.61500 into sight.

However, softer inflation may readjust market sentiment toward the Fed rate path, potentially driving the AUD/USD toward the $0.63623 resistance level.

Global Market Trends: Expert Insights for Traders

The dynamic nature of monetary policy requires close monitoring of economic data and expert commentary. Traders should stay informed and adjust strategies to navigate volatile markets. For comprehensive analyses of AUD/USD and USD/JPY trends, view our detailed reports here.