Japanese Yen and Aussie Dollar Forecasts: China Industrial Profits and Inflation in Focus

Tokyo Inflation Spotlights the Yen and the Bank of Japan

On Friday, June 27, economic data from Japan will influence Bank of Japan rate hike bets and USD/JPY trends. Economists forecast Tokyo’s CPI (Ex-Food and Energy) to rise 1.9% year-on-year (YoY) in June, down from 2.1% in May. Softer inflation could temper bets on a Q3 BoJ rate hike, weighing on demand for the Yen. Conversely, a higher print may fuel speculation about a BoJ policy move, and lift Yen appetite.

The BoJ’s Summary of Opinions from the June policy meeting revealed two key trends. Japan’s economy was likely to moderate, with underlying CPI inflation expected to be sluggish, mainly due to the deceleration in the economy. The BoJ noted that risks to inflation were skewed to the downside.

Meanwhile, retail sales figures will give insights into Japan’s economic momentum given private consumption accounts for over 60% of GDP. Economists expect retail sales to rise 2.7% YoY in May, down from 3.3% in April.

Weaker retail sales may also dampen demand-driven inflationary pressures, supporting a less hawkish BoJ stance. However, a pickup in private consumption may raise expectations of a BoJ hike. The BoJ reaffirmed its policy outlook, stating:

“If its outlook for economic activity and prices will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation.”

USD/JPY Daily Outlook: Inflation to Drive Fed Rate Cut Bets

During the US session, the US Personal Income and Outlays Report will influence the Fed rate path. Economists forecast the Core PCE Price Index to rise 2.6% YoY in May, up from 2.5% in April.

A higher inflation print may reflect the early effects of tariffs on prices, supporting Fed Chair Powell’s wait-and-see stance. A more hawkish Fed rate path could drive USD/JPY toward the June 22 high of 148.026. Conversely, a softer print may raise bets for a Fed rate cut, pushing the pair toward 142.5, a crucial support level.

Beyond inflation, personal income and spending trends also need consideration. Rising income and spending may boost inflation, while weaker trends may signal cooling inflationary pressures.

With inflation in focus, investors should monitor the Fed’s reaction to the numbers.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Rising Middle East tensions, hotter Japan inflation, or cooling US inflation could push USD/JPY toward 142.5.
• Bullish USD/JPY Scenario: Easing Iran-Israel friction, softer Japan inflation, or hotter US inflation may send the pair toward 148.026.

See today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD in Focus: China Economy to Fuel Aussie Dollar Demand

Meanwhile, economic data from China will be a key focus for the AUD/USD pair. Economists expect Chinese industrial profits to rise 1.5% year-to-date in May compared to the first five months of 2024, up from 1.4% in April.

A pickup in industrial profits may boost investments and demand. Given China accounts for around one-third of Aussie exports and Australia has a trade-to-GDP ratio of above 50%, an improving demand environment may lift the Aussie economy. An improving economic backdrop could also support a less dovish RBA policy stance.

Conversely, a lower reading may indicate weaker Aussie trade terms and support a more dovish RBA rate path.

During the May press conference, RBA Governor Michele Bullock highlighted the influence of China’s economy, stating:

“Australia’s economy could easily be compromised if a trade war between the US and China escalates. Depending on where we end up on trade developments, there might be more interest rate adjustments. But for now, rates are in the right place.”

Governor Bullock’s comments also left the Aussie dollar exposed to US-China trade developments.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Renewed Iran-Israel tensions, rising US-China trade friction, or softer China data may push AUD/USD toward the crucial $0.65 support level.
• Bullish AUD/USD Scenario: The Iran-Israel ceasefire holds, progress toward a US-China trade deal, or upbeat Chinese data could drive AUD/USD toward the June 26 high of $0.65637 and potentially the $0.66 level.

Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.

Aussie Dollar Daily Outlook: US Inflation to Drive Rate Differentials

Later today, the US inflation numbers will influence US-Aussie interest rate differentials and AUD/USD trends.

Softer-than-expected inflation and personal income/spending could boost Q3 Fed rate cut bets, narrowing the rate differential. A narrower rate differential favoring the Aussie dollar could drive AUD/USD toward $0.66.

Conversely, hotter inflation and rising personal income/spending would widen the rate differential favoring the US dollar. A wider rate differential on fading Fed rate cut bets may push AUD/USD below $0.65 toward the 50-day Exponential Moving Average (EMA).

Key Market Drivers to Watch Today:

• USD/JPY: Japan’s economic data and US-Japan trade headlines.
• USD/JPY and AUD/USD: US inflation, trade headlines, and Middle East updates.
• AUD/USD: China data and US-China trade news.

For more in-depth analysis, review today’s USD/JPY and AUD/USD trading setups in our latest reports and consult our economic calendar.