Japanese Yen and Aussie Dollar Forecast: Trade Talks and BoJ Rate Expectations Take Center Stage

Key Highlights:

• USD/JPY sees heightened volatility amid US-Japan trade deal rumors and shifting Bank of Japan (BoJ) rate hike expectations.
• Reuters poll shows fading BoJ rate hike optimism as global trade uncertainty persists.
• Easing US-China tensions could spark an AUD/USD rally toward $0.65.

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USD/JPY Outlook: US-Japan Trade Negotiations and BoJ Bets Drive Market Sentiment

The USD/JPY pair could face major moves this week, fueled by renewed speculation around a potential US-Japan trade deal. After President Trump temporarily lowered tariffs from 24% to 10% to facilitate talks, markets now watch for a breakthrough that could reshape global risk sentiment.

According to Fox Business, the Trump administration aims to finalize multiple trade deals this week, including agreements with Japan, India, South Korea, and Australia. However, uncertainty remains, and any delay could trigger sharp market reactions.

While Japan has dodged the worst of the tariffs so far, the ongoing 10% levy, coupled with a strong Yen, continues to pressure its export sector. Japan’s economy remains highly sensitive, with 45% of its GDP tied to trade and the US absorbing nearly 20% of Japanese exports.

If a US-Japan deal is secured, it could boost global confidence, initially weakening the safe-haven Yen. However, longer term, improving economic conditions could reignite bets for a BoJ rate hike in 2025.

Recent Tokyo CPI data already showed inflation reaching the BoJ’s 2% target for April, bolstering the case for tightening policy if global trade tensions ease.

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Reuters Survey: Falling Confidence in BoJ Rate Hikes

A new Reuters survey reveals cooling expectations for BoJ action:

• 52% of economists expect no rate move before Q3 2025.
• Just 27 out of 52 predict a 25bps hike by Q3, down from 40 in March.
• Only 11 analysts see a hike as early as July, compared to 26 in March.
• Notably, 9 experts now believe the next hike won’t come until 2026 or later.

Trade uncertainty is the biggest headwind stalling BoJ tightening prospects.

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USD/JPY Key Technical Levels to Watch

• Bullish Scenario: A US-Japan trade deal, easing global tensions, or a dovish BoJ could push USD/JPY toward 145.
• Bearish Scenario: Failed trade negotiations or escalating US-China tensions could drive USD/JPY lower toward 140.30 support.

📊 Today’s Watchlist: US Dallas Fed Manufacturing Index release – a stronger print could lift the dollar and USD/JPY higher.

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AUD/USD Forecast: Riding Global Trade Optimism

Meanwhile, the AUD/USD remains heavily influenced by global trade developments. Australia’s economy depends on trade for over 50% of GDP, with China absorbing one-third of exports.

A positive resolution to US-China and US-Australia tariffs could reignite Aussie dollar demand, particularly after the IMF slashed Australia’s 2025 growth forecast to 1.6%.

The Reserve Bank of Australia (RBA) is also expected to weigh growth concerns heavily at its May policy meeting, with rising odds of a rate cut.

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AUD/USD Key Technical Levels to Watch

• Bullish Scenario: Progress in US-China trade talks or a hawkish RBA stance could lift AUD/USD above the 200-day EMA, targeting $0.65.
• Bearish Scenario: Renewed trade friction or weak US manufacturing data could push the pair below $0.6362 support, with risks of testing $0.63.

📊 Today’s Watchlist: Dallas Fed manufacturing data – weaker figures could support Aussie dollar gains.

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Final Thoughts

As US-Japan and US-China trade talks intensify, the Japanese Yen and Australian Dollar are set for volatile moves. Keep an eye on tariff negotiations, BoJ rate hike speculation, RBA commentary, and key US economic data releases for trading opportunities in USD/JPY and AUD/USD.

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