Japanese Yen and Australian Dollar News: Japan PMIs, the BoJ, and China in Focus

Will Manufacturing PMI Data Test BoJ Rate Hike Bets?

On Monday, December 30, finalized manufacturing PMI data will put the USD/JPY pair and Bank of Japan in focus. According to the preliminary survey, the Jibun Bank Manufacturing PMI increased from 49.0 in November to 49.5 in December.

A revision above 50 would signal expansion in the sector, potentially fueling speculation about a January BoJ rate hike. However, employment and price subcomponents, particularly wage growth, remain critical factors for BoJ deliberations.

Inflationary pressures also play a crucial role. Tokyo’s annual inflation rate accelerated to 3.0% in December, up from 2.6% in November, exceeding the Bank’s 2% target.

BoJ Governor Kazuo Ueda recently stated that the economy and prices were moving in line with the Bank’s projection. However, Governor Ueda said the Bank needs more wage data and time to assess the effects of Trump’s policies before considering a rate hike. Today’s data may give the BoJ further reason to discuss a New Year rate hike.

Upbeat PMI data may drag the USD/JPY pair toward the 156.884 support level, and potentially further to 155. Conversely, weaker data could dampen bets on a January hike, driving the pair toward 160.

Expert Views on the Bank of Japan’s Mixed Signals

On Friday, Neil Sethi, Managing Partner at Sethi Associates, remarked on the Bank of Japan’s Summary of Opinions, saying,

“Minutes from the Bank of Japan’s Dec meeting indicate a ‘lively discussion over the timing’ of a potential rate hike with several BoJ members pushing for one in December. The comments contrast with the more cautious tone from Gov Ueda last week. The Yen strengthened a bit after falling to the least since July on Thursday. Overnight swaps on Friday pointed to a 42% chance of a January move, with bets on a hike by March reaching 72%.”

Sethi underscored the ongoing uncertainty about the timing of a BoJ rate hike as Board members hold contrasting views.

USD/JPY Trends: US Data and the Fed Rate Path

Turning to the US session, pending home sales, Chicago PMI, and Dallas Fed Manufacturing data will influence US dollar demand.

Better-than-expected figures could support a less dovish Fed rate path, driving the USD/JPY pair toward the 161.920 resistance level. Conversely, weaker economic activity and falling pending home sales may drag the pair toward the 156.884 support level.

Housing sector data remain crucial as investors assess housing services sector inflation trends. Weaker demand for homes could dampen housing services inflation, supporting a more dovish Fed rate path.

AUD/USD: Will Sentiment Toward China Weigh on Aussie Dollar Demand?

Shifting our focus to the Australian dollar, China’s economy remains a focal point, influencing the AUD/USD pair.

The Kobeissi Letter remarked on China’s economy on Saturday, saying,

“China’s economy is rapidly slowing. While treasury yields in the US hit new 7-month highs, China’s 10-year yield hit a new record low. In fact, China’s 10-year government bond yield has now halved since January 2024.”

The Kobeissi Letter added,

“Multiple indicators show a general slowdown of China’s economy contributing to these moves. Increases in both industrial production and consumption have slowed significantly. In fact, retail sales growth is now at ~2% and on track to hit the lowest since the pandemic.”

Beijing’s stimulus measures must boost consumer sentiment to drive consumption and domestic demand. An improving demand environment could support Aussie exports and the economy since China accounts for one-third of Australia’s exports.

Weak demand may weaken Aussie exports, potentially affecting the labor market. 20% of the Aussie workforce is in trade-related jobs.

This week, China’s private sector PMIs could highlight the effectiveness or lack thereof of stimulus measures. Weak data may impact Aussie dollar demand further.

In December, RBA Governor Michele Bullock underscored the importance of China’s economy, saying,

“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

US pending home sales data could further influence sentiment toward US-Australian interest rate differentials. Upward home sales trends may signal a pickup in housing sector inflation, supporting a less dovish Fed rate path.

A widening interest rate differential could drag the AUD/USD pair below the crucial $0.62 level. Conversely, weak figures may retrigger bets on a January Fed rate cut, potentially driving the pair toward $0.63.

Global Market Trends: Key Takeaways for Traders

Economic data and central bank policies remain pivotal to market trends. Traders should closely monitor BoJ, Fed, and RBA communications alongside this week’s PMI data for USD/JPY and AUD/USD pairs.

Intervention threats from Japan’s government, stimulus-related news from Beijing, and US tariff developments also need consideration. For more detailed insights, explore our comprehensive reports here.