This week, two important reports could significantly impact currency markets: Japan's producer price index and Australia’s labor market data. These updates may influence the Japanese Yen (USD/JPY) and Australian Dollar (AUD/USD) by shaping expectations around central bank decisions the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA).
Japan’s Producer Prices Could Affect the Yen and BoJ Policy
Why Producer Prices Matter for USD/JPY
On Wednesday, May 14, Japan will release its producer price index (PPI), which measures what businesses pay for goods and services. Economists expect producer prices to have increased 4% year-over-year in April, slightly less than the 4.2% rise in March.
A weaker-than-expected result could suggest that demand is slowing, which may reduce inflation pressure. In such cases, companies may cut prices to attract buyers, which could lead to lower inflation overall. This would support the BoJ's recent downward revisions to its inflation and economic growth outlook, suggesting the central bank is less likely to raise interest rates soon.
On the other hand, if producer prices come in higher than expected, it could raise concerns about rising inflation. That may push the BoJ to consider raising interest rates later in 2025—possibly as soon as Q3 (July to September). This could strengthen the Japanese Yen, pushing USD/JPY lower.
USD/JPY Outlook: Fed Policy and Global Trade Still Key Drivers
Apart from Japan’s data, U.S. Federal Reserve policy signals and global trade conditions will continue to influence the Yen’s strength.
- If trade tensions ease, investors may move away from the Yen, which is seen as a safe-haven currency during global uncertainty.
- If tensions rise such as new conflicts or tariffs the Yen could strengthen due to increased demand for safer assets.
During the U.S. trading session, Federal Reserve commentary will also be important.
- A hawkish Fed meaning they keep interest rates high could strengthen the U.S. dollar and push USD/JPY toward 150.
- If the Fed signals rate cuts, especially following recent tariff changes, the dollar may weaken and USD/JPY could fall toward 145.
USD/JPY – Daily Chart
Key USD/JPY Scenarios
- Bearish (Yen strengthens): Trade tensions increase, Japan’s inflation is hotter than expected, or the BoJ sounds more aggressive.
- Bullish (Yen weakens): Trade tensions ease, inflation softens, or the BoJ maintains a cautious stance.
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Australian Dollar Forecast: Labor Market Data to Drive AUD/USD
Focus on Australia’s Jobs Report – May 15
On Thursday, May 15, Australia will release its April labor market report, which is expected to show a steady unemployment rate of 4.1%. Analysts also expect an increase in full-time employment, indicating a strong job market.
If job growth continues and the unemployment rate stays low, it could lead to higher wages and more consumer spending which in turn may increase inflation. In this case, the RBA may delay or reduce interest rate cuts, supporting the Aussie dollar.
However, if unemployment rises and fewer people have full-time jobs, it could increase the likelihood of RBA rate cuts. This would likely weaken the AUD/USD exchange rate.
Expert Insight: Shane Oliver, AMP Capital
Shane Oliver, Chief Economist at AMP, noted that after the recent easing of U.S.-China trade tensions, expectations for RBA rate cuts have declined. Markets now expect about 3 more 0.25% cuts this year, down from 5 earlier. A rate cut is almost fully priced in for next week, with a 99% chance according to market data.
Fed Comments Will Also Affect AUD/USD
Later today, Federal Reserve officials will speak, and their tone could impact AUD/USD.
- If the Fed stays hawkish, the U.S. dollar may strengthen, widening the yield gap and pushing the Aussie lower.
- If the Fed leans toward a June rate cut, the Aussie dollar could gain ground.
Final Thoughts
This week could be a turning point for both the Japanese Yen and Australian Dollar, depending on key economic reports and central bank signals. Traders should keep a close eye on inflation trends in Japan, job data from Australia, and any updates from the Federal Reserve. These factors could shape expectations for interest rate changes and drive major currency moves in USD/JPY and AUD/USD.
