Japanese Yen and Aussie Dollar Forecasts: Japan Trade Surplus Shrinks Sharply

Trade Terms and Negotiations: USD/JPY Impact

Japan’s trade terms were under the spotlight on Wednesday, May 21, influencing the USD/JPY pair and the Bank of Japan rate path. The trade balance dropped from a ¥559.4 billion surplus in March to a ¥115.8 billion deficit in April. Significantly, exports rose 2% year-on-year (March: +4%), imports fell 2.2% (March: +1.8%), pointing to weaker external and domestic demand.

Given Japan’s trade-to-GDP ratio of about 45%, deteriorating trade terms raise the risk of recession, especially after the Q1 economic contraction. Increasing speculation about a recession may temper bets on a Q3 2025 BoJ rate hike, denting Yen demand.

Meanwhile, trade terms with the US came under scrutiny as Tokyo urged the Trump administration to drop tariffs. Exports to the US fell 1.8%, while imports from the US tumbled 11.6%, widening the trade surplus with Japan’s largest trading partner.

USD/JPY Daily Outlook: Fed Speakers in Focus

Later in the session, FOMC member speeches could give clues on the Fed’s rate path and influence US dollar appetite. The Fed’s Tom Barkin will speak, with comments on the labor market, inflation, tariffs, and the timing of a Fed rate cut requiring consideration. Barkin recently downplayed the chances of a US recession and the need for imminent rate cuts.

Support for a Q3 Fed rate cut could impact US dollar demand, dragging USD/JPY toward the May 6 low of 142.350. However, calls to delay Fed rate cuts beyond Q3 amid tariff-related uncertainties may lift USD/JPY toward 145 and the 50-day EMA.

Beyond the Fed, traders should closely track trade developments, which flows into the Japanese Yen.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Trade tensions, strong Japan data, or dovish Fed remarks may push USD/JPY toward 142.5.
• Bullish USD/JPY Scenario: Easing trade tensions, soft Japan data, or hawkish Fed signals could lift USD/JPY toward 145 and potentially the 50-day EMA.

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

AUD/USD in Focus: Wage Data in Spotlight

On May 21, Aussie wage growth data from the ABS will likely influence AUD/USD trends after Tuesday’s RBA rate cut. The ABS will release March’s employee earnings data, offering early insights into wage growth trends and their potential impact on consumer spending and inflation.

In December, total wages and salaries paid by employers fell 0.7% month-on-month but rose 5.7% year-on-year. Rising wages could fuel consumer spending and inflationary pressures, potentially curbing multiple RBA rate cut bets. Conversely, softer wage growth may support a more dovish RBA stance. On May 20, the RBA cut interest rates and noted softer wage growth, signaling further rate cuts.

Beyond the data, US-China trade headlines also require consideration.

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Rising US-China tensions, weak wage growth, or dovish RBA signals may push AUD/USD to $0.63623, below the 200- and 50-day EMAs.
• Bullish Aussie dollar Scenario: Easing US-China trade tensions, rising wages, Beijing stimulus, or hawkish RBA rhetoric could drive the pair toward the May 14 high of $0.65008.

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

Aussie Dollar Daily Outlook: Fed Chatter and Rate Differentials

Later today, hawkish Fed comments may widen the US-Aussie interest rate differential in favor of the US dollar. A less dovish Fed rate path could weigh on AUD/USD, possibly dropping below the 200-day EMA. A drop below the 200-day EMA would bring the 50-day EMA and the $0.63623 support level into play. However, growing support for a Q3 Fed rate cut may narrow the rate differential, lifting the pair toward $0.64500.

Key Market Drivers to Watch Today:

• USD/JPY: US-Japan trade talks and BoJ commentary.
• USD/JPY and AUD/USD: Fed signals and global trade headlines.
• AUD/USD: US-China tensions, Aussie wage growth, RBA signals, and China stimulus.

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