Japanese Yen and Australian Dollar News: USD/JPY Eyes 153.5 on BoJ Core Inflation Data

Bank of Japan Core Inflation in Focus

The Bank of Japan’s (BoJ) Research and Statistics Department will release its Core Consumer Price Index figures on Tuesday, November 26. The inflation figures will likely influence the USD/JPY pair and sentiment toward the BoJ rate path.

Economists predict the BoJ’s core inflation rate will increase by 1.8% year-on-year in October, slightly higher than 1.7% in September. A core inflation rate at or above the BoJ’s 2% target could intensify speculation about a December BoJ policy move.

Expectations of a more hawkish BoJ rate path may boost Japanese Yen demand, potentially pulling the USD/JPY pair toward 153.5. Conversely, an unexpected decline in the BoJ’s core consumer price index might temper bets on a December BoJ rate hike. A BoJ rate hike delay until Q1 2025 may drive the USD/JPY toward 156.

Why are the BoJ’s inflation figures significant?

The BoJ highlights the significance of its core inflation figure, stating:

“Instead of focusing on a specific core inflation measure, a comprehensive examination of various core inflation measures enables us to identify the trends of price movements in a more accurate manner.”

On Friday, November 22, Japan’s core inflation rate slipped from 2.4% in September to 2.3% in October. However, the core inflation rate remained above the BoJ’s 2% inflation target, supporting bets on a December BoJ rate hike. The Statistics Bureau of the Ministry of Internal Affairs and Communications released Friday’s national inflation figures.

Expert Views on the Bank of Japan’s Rate Path

On Monday, November 25, CLSA Strategist Nicholas Smith predicted a 25-basis point December BoJ rate hike and two additional rate hikes in 2025. Smith suggested that rate hikes could benefit Japan’s households by strengthening the Yen. A stronger Japanese Yen may lower import costs, potentially lowering living costs.

Japanese Yen Daily Chart

In today’s US session, US housing sector data and consumer confidence figures will likely influence US dollar demand.

Upbeat housing sector and consumer confidence data could signal a pickup in consumer spending. Higher consumer spending may fuel demand-driven inflation, potentially driving the USD/JPY toward 156, a key resistance level. On the other hand, weaker consumer confidence could strengthen expectations for a December Fed rate cut, pulling the pair toward 153.5, a crucial support level.

AUD/USD Prepares for Inflation Shock

Shifting to the AUD/USD, Aussie inflation figures take center stage this week. On Wednesday, November 27, the Aussie Monthly CPI Indicator could influence sentiment toward the RBA rate path. The Monthly CPI Indicator dropped to 2.1% in September, down from 2.7% in August. Significantly, headline inflation fell to the lower range of the RBA’s 2-3% inflation target range.

Economists do not expect the RBA to cut interest rates in December. RBA Governor Michele Bullock previously warned that headline inflation could drop within the target range but is unlikely to reflect underlying inflation.

Components of the Monthly CPI Indicator, particularly housing services inflation, remain crucial in assessing inflationary pressures and potential RBA policy maneuvers.

Markets could get further insights into the RBA’s monetary policy stance on Thursday, November 28. The RBA Governor will speak at the Annual CEDA Conference. Comments on labor market conditions, private consumption, and inflation could significantly impact the AUD/USD pair.

Commodity price trends and market risk sentiment may also influence Aussie dollar demand ahead of Wednesday’s inflation numbers.

Australian Dollar Daily Chart

During the US session, the CB Consumer Confidence Index could impact US dollar demand.

Upward trends in consumer confidence may signal a pickup in spending, potentially fueling demand-driven inflation. A higher inflation outlook may temper bets on a December Fed rate cut, potentially dragging the AUD/USD pair below $0.64500. Last week, $0.64500 proved to be a crucial support level.

Conversely, weaker consumer confidence may raise bets on a December Fed rate cut, supporting an AUD/USD move toward $0.65500. In recent sessions, resistance at $0.65500 has capped the pair’s upside.

Vigilance Amid Volatile Markets

Traders should remain vigilant, monitoring central bank communications and key economic data for actionable insights. Sentiment toward central bank policy maneuvers continues to drive volatility in USD/JPY and AUD/USD trading, emphasizing the need to stay alert.