Japanese Yen and Australian Dollar News: Policy Bets Waver on Mixed Economic Signals

Pre-Bank of Japan Monetary Policy Decision Jitters?

Anticipation of Thursday’s Bank of Japan monetary policy decision could increase USD/JPY volatility ahead of the event, starting Tuesday, December 17.

Economists expect the BoJ to keep interest rates steady at 0.25%. However, recent economic indicators and BoJ forward guidance suggest a close call on whether the Bank should delay a further move until Q1 2025.

On Monday, December 16, Japan’s Jibun Bank Services PMI increased from 50.5 in November to 51.4 in December. Notably, input and output prices accelerated, potentially driving inflation higher. A higher inflation outlook, based on recent price trends, could support a near-term BoJ rate hike.

The PMI data followed inflation, household spending, wage growth, and the BoJ Tankan survey – all of which lend weight to a December BoJ rate hike. However, economists believe the BoJ will hold off, preferring to assess another round of economic data.

While recent data bolsters the case for a rate hike, lingering uncertainties around wage growth and inflation may prompt the BoJ to wait.

A degree of uncertainty remains as markets recall July’s fallout caused by the unwinding of Yen carry trades. However, a further slide in the Japanese Yen could test market confidence in expecting the BoJ will keep rates steady.

First Squawk noted that the BoJ could take a cautious approach due to limited risks of inflation overshooting and relative Yen stability against the US dollar. However, the USD/JPY has surged from 148.639 on December 3 to a December 16 high of 153.968.

Expert Views on the Bank of Japan Rate Path

Global Markets Invest commented on the BoJ rate path outlook, stating,

“The BoJ has hiked rates twice so far this year, and the market is pricing in an over 30% chance of another hike next week and a 90% probability of a raise by the end of March.”

Japanese Yen Daily Chart and US Retail Sales: What to Watch

Turning our focus to the US session, retail sales data could influence the Fed rate path. A larger-than-expected jump in retail sales may fuel demand-driven inflation, potentially lowering bets on a Q1 2025 Fed rate cut.

A more hawkish Fed rate path could drive the USD/JPY pair toward 154.5, a crucial resistance level. Furthermore, a break above 154.5 may enable the bulls to target the 156.884 resistance level.

Conversely, an unexpected fall in retail sales could retrigger bets on a January Fed rate cut, potentially dragging the pair below the 50-day and 200-day EMAs. If the pair falls below the EMAs, the next key support level is 149.358.

AUD/USD Faces RBA Policy Uncertainty

Like the USD/JPY, the AUD/USD pair could also face a choppy Tuesday session. Australia’s unemployment rate unexpectedly fell from 4.1% in October to 3.9% in November, lowering bets on a Q1 2025 RBA rate cut.

However, preliminary December PMI data complicates the outlook. Services sector firms reduced staffing levels for the first time since August 2021, signaling conflicting labor market trends.

The conflicting data could heighten volatility for the Aussie dollar as investors reassess the timing of an RBA rate cut.

Shane Oliver, AMP’s Head of Investment Strategy and Chief Economist, reacted to the PMI data, saying,

“Aust Dec PMI -0.3pts to 49.9….pointing to ongoing weak conditions with the emp component -ve for first time since lockdowns (suggesting Nov jobs data was an aberration). Input prices up but trend still down & output prices ~ pre covid levels. Feb remains in play for a rate cut.”

On Thursday, Oliver had shifted the timing of an RBA rate cut to May after November’s labor market data. The changing sentiment underscored growing uncertainty about the timeline for a potential rate cut.

Explore detailed AUD/USD trends and trade data insights by clicking here.

Australian Dollar Daily Chart

In the US session, US retail sales could influence US-Australia interest rate differentials and AUD/USD price trends.

Higher-than-expected retail sales could dampen bets on a Q1 2025 Fed rate cut, pulling the AUD/USD pair below the $0.63623 resistance level. A fall through the $0.63623 support level would bring the lower trend line into play.

Conversely, an unexpected fall in retail sales may drive the pair toward $0.64 and the upper trend line. A break above the trend line could enable the bulls to target the $0.64500 level.

Global Market Trends: Expert Insights for Traders

Shifting sentiment toward the monetary policy landscape underscores the importance of tracking economic trends and expert insights. Traders should monitor key data releases and adjust strategies appropriately in increasingly volatile markets.

Click here for a detailed analysis of AUD/USD and USD/JPY trends and trading insights.