Japanese Yen and Aussie Dollar Forecast: Yen Volatilty Up on Carry Trade Unwind Risk

BoJ Policy Stance, JGB Yields, and Yen Carry Trade Unwind Risks

Last week, the USD/JPY pair dropped below 149 amid increasing speculation about a second Bank of Japan rate hike. Bank of Japan Governor Kazuo Ueda reacted to a surge in Japanese Government Bond (JGB) yields on February 21, hinting at a potential intervention to curb rising yields.

A BoJ intervention could widen the US-Japan interest rate differential, favoring the US dollar. JGB yields climbed to 15-year highs in response to accelerating consumer price inflation. However, after Governor Ueda’s comments, JGB yields pulled back, and the USD/JPY rebounded from a February 21 low of 148.919.

Sharp rises in JGB yields could trigger another Yen Carry Trade unwind, potentially causing market disruption.

On Monday, February 24, traders should closely monitor JGB yield trends and BoJ commentary. Another yield spike could prompt BoJ warnings, potentially weighing on Japanese Yen demand.

BCR Market Insights commented on recent Yen trends and the potential for another Yen Carry Trade Unwind:

“Yen best performing G10 currency so far this year – up almost 5%. Valid reasons for this – The BOJ is the only major CB globally that is hiking rates. Next hike looks like May. Could yen carry trade unwind happen again? Mite be wise to keep an eye on the yen!”

Beyond USD/JPY trends, the Nikkei Index could also give early Yen Carry Trade unwind signals. Market analyst Jesse Colombo stated:

“If the Nikkei closes below the 37,000-38,000 support, that would confirm that the yen carry trade is unwinding again and would spook the global financial markets.”

The Nikkei closed at 38,777 on February 21.

USD/JPY Trends: US Economy in Focus

Shifting to the US session, the Dallas Fed Manufacturing Index and Chicago Fed National Activity Index will be in focus.

Upward trends in the respective Indexes could ease fears of a sharp US economic slowdown, boosting US Dollar demand. Investors may lower bets on an H1 2025 Fed rate cut, potentially driving the USD/JPY pair toward 152 and the 200-day Exponential Moving Average (EMA).

Conversely, weaker readings could heighten speculation of a near-term Fed move, potentially pulling the pair below 148.

Explore in-depth USD/JPY trade setups and expert forecasts here.

AUD/USD: Aussie Inflation and RBA Policy Speculation

Since last week’s RBA rate cut, the AUD/USD pair climbed to a high of $0.64081 on February 21 but later dropped below $0.64. Significantly, the pair revisited the $0.64 level for the first time since December 2024.

Strong Australian labor market data tempered expectations for a second RBA rate cut, fueling Aussie dollar demand.

This week, the Aussie Monthly CPI Indicator, out on February 26, will be crucial for near-term AUD/USD trends. Economists forecast the Monthly CPI Indicator to show inflation holding steady at 2.5% in January. An unexpected rise in inflation could challenge the RBA’s optimism that underlying inflation is moving toward the mid-point of its 2-3% target range.

The next RBA Monetary Policy Board Meeting will occur on March 31 and April 1. Last week, RBA Governor Michele Bullock highlighted several factors that could justify further rate cuts, stating:

“A slowdown in wage growth, disinflation in market services, a sustained decline in housing costs, and a partial recovery in supply-side conditions could support another rate cut.”

However, while Governor Bullock downplayed the chances of consecutive rate cuts, some market participants think otherwise. Real estate influencer Tom Panos commented:

“According to Louis Christopher, one of Australia’s most recognised and respected property analysts, history shows us that when the RBA moves on rates, they rarely stop at just one. It’s a pattern – not a one-off. With their next meeting on April 1st (yes, April Fool’s Day), there’s a real chance we will see another cut.”

Increased speculation about another RBA rate cut could weigh on AUD/USD, potentially pulling the pair below the $0.63 level.

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

Australian Dollar Daily Chart

In the US session, better-than-expected US data could dampen Fed rate cut bets. A widening in the US-Aussie interest rate differential, favoring the US dollar, could drag the AUD/USD pair toward $0.63.

Conversely, following Friday’s US Services PMI drop below 50, softer data could boost expectations for an H1 2025 Fed rate cut. A narrower interest rate differential may drive the AUD/USD pair through $0.64 to target the 200-day EMA.

Beyond the US data, traders should monitor US tariff developments. With a trade-to-GDP ratio exceeding 50%, sweeping US tariffs could affect Aussie exports, its economy, and Aussie dollar demand.

Market Trends: Central Banks and Trade Policies in Focus

Key macroeconomic drivers influencing currency markets include:

• Bank of Japan Forward Guidance: Potential intervention and BoJ policy insights will guide Yen demand.
• US Economic Data and Tariff Developments: Strong US data and tariff expectations could prompt a more hawkish Fed stance, strengthening the US dollar.
• AUD/USD Outlook: Speculation about the RBA’s next moves, US tariffs, and China stimulus measures will influence demand for the Aussie dollar.

Click here to read expert USD/JPY and AUD/USD forecasts for deeper insights.