Japanese Yen and Australian Dollar News: Wages Soften as Focus Turns to China

Will Japan’s Wage Growth Trends Boost December BoJ Rate Hike Bets

Wage growth figures put the USD/JPY pair and the Bank of Japan in the spotlight. Average cash earnings increased by 2.8% year-on-year in September, mirroring August’s increase. Nevertheless, wage growth has softened in recent months.

Softer wage growth and Japan’s cost of living woes could adversely affect household spending, potentially dampening inflationary pressures. A softer inflation outlook could delay a BoJ rate hike until Q1 2025, pushing the USD/JPY toward 155.

Average cash earnings will likely have a greater impact on the BoJ’s rate decision than overtime pay, which rose in September.

Japanese Yen Trends and Bank of Japan Interventions

Donald Trump’s victory in the US presidential election drove the USD/JPY to 154, nearing the threshold that may trigger currency intervention.

The Japanese Yen’s weakness could drive import prices higher and reduce household purchasing power. Household spending is significant for the economy as it accounts for over 50% of Japan’s GDP.

In June, BoJ Deputy Governor Ryozo Himino discussed the potential influences of a weaker Yen on the BoJ’s rate path, stating,

“Exchange-rate fluctuations affect economic activity in various ways. It also affects inflation in a broad-based and sustained way, beyond the direct impact on import prices.”

Intervention threats could intensify, possibly capping the USD/JPY around 155.

Japanese Yen Daily Chart

Turning to the US dollar, the focus shifts to the Fed interest rate and press conference. Fed support for a 25-basis point December Fed rate cut may drag the USD/JPY toward 153.5. Conversely, suggestions of a single Fed rate cut until 2025 could drive the USD/JPY toward 155, the lower band of the intervention zone.

Aussie Trade and the Aussie Dollar

Turning to the AUD/USD pair, Aussie trade data influenced sentiment toward the Aussie economy. The trade surplus narrowed from A$5.644 billion in August to A$4.609 billion in September. A lower-than-expected trade surplus may impact the Aussie economy and labor market. Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs.

Significantly, imports fell 3.1% in September, while exports tumbled 4.3%

Weaker imports and exports signal weaker demand, supporting a potential December RBA rate cut. A more dovish RBA rate path may drag the AUD/USD below $0.65500.

China Trade Data and Its Influence on the Aussie Dollar

Later in the morning session, China’s trade data could impact the Aussie dollar as China accounts for one-third of Aussie exports. Economists expect exports to increase by 5.0% year-on-year in October, but project imports to fall by 1.5%. A drop in imports would signal weaker demand, potentially impacting the Aussie economy and the Aussie dollar.

Australian Dollar Daily Chart

Turning our focus to the US session, traders will focus on the Fed interest rate decision and subsequent press conference.

Markets expect a 25-basis point Fed rate cut to 4.75%. Barring a surprise hold, forward guidance could be crucial following Trump’s victory. If the Fed signals support for a December rate cut, the AUD/USD could approach $0.66. Conversely, a more cautious tone may pull the AUD/USD toward $0.65.

Traders should stay alert, monitoring real-time numbers from China, the Fed, and expert commentary to adjust trading strategies accordingly. Keep informed with our timely insights.