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Japanese Yen and Australian Dollar News: Japan’s GDP Contracts; China Inflation Next

By:
Bob Mason
Published: Dec 9, 2024, 00:10 GMT+00:00

Key Points:

  • Japan’s Q3 GDP growth was revised to -0.1%, testing bets on a December Bank of Japan rate hike.
  • Private consumption, accounting for 60% of GDP, may influence the BoJ more than GDP data for rate hike decisions.
  • China’s inflation forecasts suggest stronger demand, potentially bolstering AUD/USD amid RBA rate cut speculation.
Japanese Yen and Australian Dollar News

In this article:

Japan GDP Signals BoJ Rate Hike Prospects

The Bank of Japan’s (BoJ) December policy decision is in focus: How will GDP and private consumption numbers influence the BoJ and the USD/JPY pair?

On December 9, finalized GDP figures from Japan likely influenced bets on a December Bank of Japan rate hike.

The economy unexpectedly contracted by 0.1% quarter-on-quarter in Q3 2024, down from 0.7% growth in Q2 2024. The downward revision from preliminary figures could lower bets on the anticipated BoJ rate hike.

While GDP numbers are crucial, private consumption trends potentially garnered the BoJ’s interest. Accounting for over 60% of Japan’s GDP, consumption influences consumer prices and monetary policy.

Private consumption increased by 0.7% quarter-on-quarter in Q3 2024, down from 0.9% in Q2 2024. The downward revisions to consumption may have more influence than headline GDP on the BoJ rate path.

While Monday’s GDP data warrant consideration, Japan’s recent household spending and wage growth figures from Friday will resonate.

Household spending rebounded in October, while wage growth accelerated early in Q4 2024. The October data signaled a potential pickup in inflationary pressures, supporting bets on the anticipated December rate hike.

Seabridge Gold Investor, which tracks factors driving metal prices, commented on the wage growth data, stating,

“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.”

BoJ Underscores Significance of Incoming Data

Bank of Japan Governor Kazuo Ueda recently fueled speculation about the anticipated rate hike, saying the economy aligned with the Bank’s projections. The BoJ Governor previously stated the economy must progress in line with projections to enable the Bank to raise interest rates.

Japanese Yen Daily Chart

Shifting the focus to Monday’s US session, it’s inflation week for the US dollar. Consumer inflation expectation figures could influence US dollar demand. Economists expect consumer inflation expectations to rise from 2.9% in October to 3.0% in November.

US consumer inflation expectations is a leading indicator for consumer spending trends.
FX Empire – US Consumer Inflation Expectation

Higher inflation expectations could lower Fed rate cut bets, potentially driving the USD/JPY toward the 156.884 resistance level. Conversely, weaker expectations may boost Fed rate cut bets, potentially dragging the USD/JPY pair below the 149.358 support level.

A graph of stock market Description automatically generated

AUD/USD and Demand: China Inflation in Focus

Turning to the AUD/USD pair, China’s inflation figures for November will draw interest. Economists forecast China’s annual inflation rate to rise from 0.3% in October to 0.5% in November.

China inflation rate.
FX Empire – China Inflation Rate

Furthermore, economists expect producer prices to fall 2.8% year-on-year in November, improving from a 2.9% drop in October.

Higher inflation and rising producer prices would signal an improving demand environment. Producers raise prices as demand increases. Improving demand could influence the Aussie economy as China accounts for one-third of Aussie exports. With a trade-to-GDP ratio above 50%, China’s demand could bolster the Aussie labor market since 20% of Australia’s workforce is in trade-related jobs.

A positive economic and labor market outlook may temper bets on a Q1 2025 RBA rate cut, supporting Aussie dollar demand. Conversely, weak numbers may boost Q1 2025 rate cut bets, potentially dragging the AUD/USD toward $0.63500.

Click here to unlock insights into AUD/USD trends and trade data analysis.

Australian Dollar Daily Chart

In the US session, consumer inflation expectations will likely influence AUD/USD trends. Weaker-than-expected inflation expectations could fuel bets on a Fed rate cut, potentially pushing the AUD/USD pair toward 0.64500 and the upper trend line. Conversely, falling bets on a Fed move may drag the pair below the $0.63623 support level.

AUD/USD Daily Chart sends bearish price signals.
AUDUSD 091224 Daily Chart

Global Market Strategy Insights

As monetary policy speculation mounts globally, staying ahead of economic indicators and trends is crucial. View expert forecasts here to navigate market volatility and refine your trading strategies effectively.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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