Japanese Yen and Australian Dollar News: PBoC and the BoJ in the Spotlight

The Japanese Economy and the Bank of Japan Rate Path

The USD/JPY pair is at a crucial juncture, with the Bank of Japan’s next monetary policy meeting between October 30-31. Economists expect Japan’s central bank to maintain its 0.25% interest rate.

Recent economic indicators and concerns about the global macroeconomic environment have influenced the BoJ’s forward guidance. Bank of Japan Governor Kazuo Ueda and BoJ board members have suggested a near-term hold on interest rates.

Recently, Japan’s Services PMI, a key indicator, fell from 53.7 in August to 53.1 in September, disappointing investors. Trade data highlighted a weakening demand, with exports declining by 1.7% year-on-year in September after a 5.5% rise in August.

Considering the macroeconomic environment, the BoJ will unlikely raise interest rates until Q1 2025. A recent Reuters poll showed that 25 out of 49 economists polled expect the BoJ to maintain interest rates through Q4 2024, and notably, 39 of 45 expect the BoJ to raise interest rates to 0.5% by March 2025.

Political pressures are also a factor. Japan’s new Prime Minister, Shigeru Ishiba, poured cold water on rate hike expectations, saying the country was not ready for it.

This week, Services PMI and inflation figures for Tokyo could give markets more reasons to write off a Q4 2024 BoJ rate hike.

Economists expect the Jibun Bank Services PMI to fall from 53.1 in September to 52.7 in October. Bank of Japan Governor Kazuo Ueda considers services sector prices crucial for inflation and the BoJ rate path. Furthermore, economists forecast Tokyo’s core inflation rate to fall from 2.0% to 1.7%, below the BoJ’s 2% target.

Considering the USD/JPY’s recent return to 150, investors should monitor BoJ commentary. Calls to maintain interest rates through Q4 2024 could further impact the Yen, potentially driving the USD/JPY toward 151.

Japanese Yen Daily Chart

On Friday, rising bets on a 25-basis point November Fed rate cut dragged the USD/JPY below 149.5. Later in the Monday session, investors should track FOMC member speeches. Insights into the US economic outlook and the Fed rate path could impact the pair.

Expectations of a soft landing and calls to delay a December Fed rate cut could drive US dollar demand, potentially pushing the USD/JPY toward 151. Conversely, dovish commentary and support for more aggressive Fed rate cuts could drag the pair below 149.

FOMC member Jeffrey Schmid and former Committee Members Lisa Logan and Neel Kashkari are on the calendar to speak.

The People’s Bank of China and the Aussie Dollar in Focus

Turning to the AUD/USD pair, the People’s Bank of China (PBoC) will be in the spotlight. Economists expect the PBoC to cut both the 1-year and 5-year Loan Prime Rates (LPR) by 20 basis points to 3.15% and 3.65%, respectively.

China’s monetary policy and fiscal stimulus measures continue to influence AUD/USD trends. Given that one-third of Australian exports are bound for China, increased Chinese demand could boost the Aussie economy. Australia has a trade-to-GDP ratio above 50%, with 20% of its workforce in trade-related jobs.

A larger-than-expected cut to the LPRs could push the AUD/USD toward $0.67500. Conversely, if the PBoC holds rates, the pair may drop to $0.66500.

Australian Dollar Daily Chart

On Monday, October 21, the AUD/USD broke through the crucial $0.67 level. Rising bets on a November Fed rate cut contributed to the Monday morning move. However, Fed speakers could influence AUD/USD trends later in the session. Fed Presidents Neel Kashkari, Lisa Logan, and FOMC member Jeffery Schmidt are on the calendar to speak.

Support for November and December Fed rate cuts could drive the AUD/USD toward $0.67500. Conversely, support for a single rate cut through the remainder of Q4 2024 may see the pair fall back toward $0.66500.

Traders should remain vigilant. RBA commentary and China’s maneuvers to bolster its economy require consideration. Stay alert to real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Keep ahead of the markets with our expert insights.