Japanese Yen and Australian Dollar News: USD/JPY Eyes 150-160 Range on BoJ Decision

Will the BoJ Add to the Market Carnage or Play it Safe?

The USD/JPY will be in the spotlight on Thursday, December 19, as the Bank of Japan delivers its final policy decision of the year. Markets widely expect the BoJ to leave interest rates at 0.25% while signaling a Q1 2025 hike, potentially as early as January.

However, there is the risk of a surprise BoJ rate hike, which could trigger another carry trade unwind. Market disruption from July’s rate hike and cut to Japanese Government Bond (JGB) purchases sent the USD/JPY to 139.576 in September, its weakest level since July 2023. The BoJ will be mindful of the likely impact of a surprise rate hike.

Overnight, the US Federal Reserve likely added pressure on the BoJ to make a move after its more hawkish outlook. The USD/JPY rose to a Wednesday high of 154.859, potentially impacting import prices, living costs, and household spending.

Investors should brace for volatility on Thursday morning. If the BoJ signals a January rate hike, the USD/JPY could fall toward 150. Conversely, a non-commital stance could push the pair toward 160. However, if the BoJ raises rates and signals further rate hikes in Q1 2025, the USD/JPY could slide toward 140, triggering another carry trade unwind.

A Ueda Yagi Tanshi brokerage poll found that 91% of participants expect rates to remain unchanged this week, but 95% foresee a BoJ hike within three months.

Expert Views on the Bank of Japan Rate Path

Commenting on the potential financial risks of a BoJ rate hike, Kurt S. Altrichter noted:

“Japanese wage growth is accelerating, pressuring the Bank of Japan to act. With the Yen carry trade deeply entrenched, a shift in policy could trigger a massive unwind, making Japan the potential epicenter of a financial crisis.”

Despite rising wages, BoJ Governor Kazuo Ueda emphasized the need for a sustained upward trend. His comments sank bets on a December rate hike, potentially delaying a policy move until after the spring wage negotiations (shunto). However, this was all before the Fed’s policy hawkish turn and the threat of a USD/JPY return to 160.

USD/JPY Trends: Jobless Claims in Focus

Turning our focus to the US session, initial jobless claims will influence US dollar demand. Economists expect claims to fall from 242k (week ending December 7) to 230k (week ending December 14).

A larger-than-expected fall may support the Fed’s more hawkish stance, potentially driving the USD/JPY pair toward the 156.884 resistance level. In contrast, increasing beyond 250k could challenge the Fed’s more hawkish rate path, dragging the pair toward the EMAs. A drop below the EMAs would bring the 149.358 support level into sight.

AUD/USD: Inflation Expectations and China Stimulus Measures

Turning to the AUD/USD pair, Australian consumer inflation expectations need consideration this morning. Economists expect consumer inflation expectations to slip from 3.8% in November to 3.5% in December.

A larger-than-expected fall toward the RBA’s 2-3% target range could signal a Q1 2025 RBA rate cut. Consumers delay purchasing non-essential goods if prices are likely to fall, dampening demand-driven inflation.

Rising bets on a Q1 2025 RBA rate cut could drag the AUD/USD pair toward $0.61500. A more dovish RBA rate path would signal a wider interest rate differential between the US and Australia, weighing on the Aussie dollar.

Conversely, an unexpected rise in consumer inflation expectations may delay RBA action, driving the AUD/USD toward $0.63.

RBA Governor Michele Bullock fueled optimism about a Q1 2025 rate cut during a recent press conference, saying,

“If inflation continues to soften, the RBA could become confident about cutting interest rates.”

China also remains a focal point as investors await details of stimulus measures targeting consumption and domestic demand. Accounting for one-third of Aussie exports, a pickup in demand from China could be a boon for the Aussie economy and the Aussie dollar.

For a comprehensive analysis of AUD/USD trends and trade data insights, visit our detailed reports here.

Australian Dollar Daily Chart

In Thursday’s US session, the US labor market data could further influence interest rate differentials. The AUD/USD could drop below the lower trend line toward $0.61500 if initial jobless claims fall below 230k. A sharp decline in claims would signal a tighter labor market, supporting the Fed’s policy outlook.

Conversely, the AUD/USD could move toward $0.63 if claims spike, suggesting weaker consumer spending and softer inflation.

Global Market Trends: Expert Insights for Traders

Ever-changing sentiment toward monetary policy underscores the importance of tracking economic trends and expert commentary. Traders should monitor key releases and adjust strategies accordingly in volatile markets. Click here for a detailed analysis of AUD/USD and USD/JPY trends and trading insights.