Japanese Yen and Australian Dollar News: Yen Eyes 147.5 on BoJ Rate Hike Bets

BoJ December Decision: Inflation and Wage Trends

BoJ’s December Dilemma: Could Inflation Trends Spark a Yen Revival?

Market sentiment toward the Bank of Japan rate path will influence USD/JPY trends on Tuesday, December 3.

Over the weekend, Bank of Japan Governor Kazuo Ueda reportedly warned markets about a potential interest rate hike, saying,

“We will adjust the degree of monetary easing at the appropriate time if we become confident or certain that the economy will move as forecasted by our economic and price outlook – particularly that the underlying inflation rises toward 2%.”

Have Japan’s inflation trends met the BoJ’s requirements to hike rates next week?

Tokyo’s core inflation rate accelerated from 1.8% in October to 2.2% in November, exceeding the BoJ’s 2% target. However, inflation, excluding food and energy, remained below target at 1.9%.

Inflation trends suggest the BoJ could raise interest rates on December 19. However, wage growth trends may create uncertainty. The BoJ needs stronger wage growth to hike rates.

Beyond inflation, the BoJ Governor underscored the importance of wage growth, another focal point ahead of the BoJ’s December monetary policy decision.

On Friday, December 6, Japan’s average cash earnings could have a greater influence on the USD/JPY pair after Governor Ueda’s comments.

Economists forecast wages to increase by 2.6% year-on-year in October, down from 2.8% in September. Softer wage growth may force the BoJ to shift its focus to Japan’s spring wage negotiations, known as Shunto. Conversely, higher-than-expected numbers could raise bets on a December rate hike, driving Japanese Yen demand.

On Tuesday, investors should monitor BoJ commentary. Rising support for a December rate hike could drag the USD/JPY toward 147.5. However, calls to delay a rate hike until Q1 2025 may push the USD/JPY through 150.

Expert Views on a December Bank of Japan Rate Hike

What do the experts think about a December BoJ rate hike?

Experts are divided on whether the BoJ will raise interest rates this month.

On Friday, Shigeto Nagai of Oxford Economics reportedly said economic data support a December rate hike. However, Shigeto Nagai highlighted the uncertainty surrounding the rate path, saying that the BoJ may wait for another round of data before hiking rates.

November’s Reuters poll showed 56% of economists predicting a December hike, up from 49% in the October poll.

However, Ivory Hill founder Kurt S. Altrichter was more convinced about a BoJ rate hike, stating,

“The Fed is not the most important central bank to watch right now. The Bank of Japan is. Japanese companies are passing rising labor costs to consumers at the fastest rate in 32 years, supporting the case for a BoJ rate hike.”

Japanese Yen Daily Chart

Turning to the US session, the US JOLTs Job Openings report will influence US dollar demand. Economists expect job openings to increase from 7.443 million in September to 7.480 million in October.

Rising job openings may signal a tight labor market, fueling consumer spending and demand-driven inflation. Investors could reduce bets on a December Fed rate cut, pushing the USD/JPY pair toward the 151.685 resistance level. Conversely, an unexpected fall in job openings could drive expectations for a December rate cut, potentially pulling the pair toward the 148.529 support level.

AUD/USD and Trade Data in Focus

Beyond USD/JPY, other major currency pairs like AUD/USD also face significant market drivers. Aussie trade data requires consideration. Economists expect net export contributions to GDP to increase by 0.4% in Q3 2024, up from 0.2% in Q2 2024.

How do Aussie trade terms influence the labor market and the economy?

Upward trends in net export contributions to GDP may signal improving demand, potentially boosting the Aussie economy. Australia has a trade-to-GDP ratio of above 50%. Additionally, rising demand could signal a resilient labor market as 20% of Australia’s workforce is in trade-related jobs.

Tight labor market conditions may support wage growth, fueling consumer spending and inflationary pressures. The RBA could delay an interest rate cut until the labor market weakens and wage growth slows.

Higher-than-expected trade data could push the AUD/USD pair toward $0.65. Conversely, weaker-than-expected export figures could pull the pair below $0.64500.

Australian Dollar Daily Chart

In the US session, rising US job openings could lower expectations for a December Fed rate cut, pulling the AUD/USD pair below $0.64500. However, an unexpected fall in job openings may signal a weakening US labor market, boosting bets on a December rate cut. US dollar demand may weaken, potentially driving AUD/USD toward the crucial $0.65 resistance level.

Monitoring Global Monetary Policy Speculation

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