Yen and Aussie Dollar Outlook: BoJ Action, Fed Data, and US-China Talks Take Center Stage

Key Takeaways:

• USD/JPY could see sharp moves depending on BoJ’s bond purchases and US economic signals.
• AUD/USD eyes direction from US-China trade talks and Fed’s manufacturing data.
• Rate differentials, geopolitical headlines, and stimulus signals remain key catalysts.

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USD/JPY: Yen Volatility Likely as BoJ and Fed Events Loom

The Japanese Yen is positioned for heightened volatility this week as traders await fresh signals from the Bank of Japan (BoJ). On Monday, the central bank is set to announce its latest Japanese Government Bond (JGB) purchase details—an event that could influence long-term yields and USD/JPY movement ahead of Thursday’s rate decision.

BoJ’s bond-buying strategy directly impacts JGB yields. Increased purchases tend to suppress yields, weakening the Yen by lowering returns on Japanese assets and reducing foreign inflows. This dynamic could support further gains in USD/JPY.

Adding to the focus, inflation in Tokyo remains elevated, with core-core CPI easing only slightly to 2.9% in July—still above BoJ’s 2% target. This keeps the door open for potential policy adjustments in H2 2025.

Upcoming US Data – Dallas Fed Manufacturing Index

Monday’s release of the Dallas Fed Manufacturing Index will offer another directional cue. A recovery from -12.7 to a forecasted -8 could support the US Dollar, potentially driving USD/JPY toward 148.00 and the 200-day EMA.

Conversely, a disappointing print could weigh on the greenback, dragging the pair toward the 50-day EMA and possibly the 145.00 handle.

USD/JPY Scenarios to Watch:

• Bullish: Weak JGB buys, dovish BoJ, strong US data — upside toward 148 and beyond.
• Bearish: Aggressive JGB purchases, hawkish BoJ, weak US data — downside toward 145.

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AUD/USD: Trade Talk Progress May Spark Aussie Rally

The Australian Dollar remains sensitive to developments in US-China relations, with high-level trade talks set to resume on July 28. Any progress could ignite upside in the AUD/USD pair as sentiment shifts toward risk assets and export optimism builds.

China is Australia’s largest trade partner, and stronger ties signal higher demand for Aussie exports. A trade deal would not only boost short-term sentiment but could also influence RBA’s future rate decisions, especially if improved trade terms translate into stronger economic growth.

RBA Governor Michele Bullock recently acknowledged the importance of China’s policy decisions, stating that fiscal stimulus from Beijing could help insulate Australia from external shocks, especially amid evolving global tariff policies.

AUD/USD Scenarios to Watch:

• Bullish: Trade deal progress, hawkish RBA tone, Beijing stimulus — target $0.6650.
• Bearish: Talks stall, dovish RBA, weak Chinese demand — support at $0.6550 could come under pressure.

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Fed Data Also in Play for Both USD/JPY and AUD/USD

Later today, the Dallas Fed Manufacturing Index will also influence AUD/USD. Stronger-than-expected data could reinforce Fed hawkishness and widen the US-Australia rate gap, pressuring the Aussie lower. However, weaker data may revive Fed rate cut expectations, lifting AUD/USD closer to the $0.66 zone.

AUD/USD Technical Snapshot:

• Support: $0.6550 (near 50-day EMA)
• Resistance: $0.6650 (bullish breakout zone)

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Conclusion: Diverging Forces, Clear Trade Setups

• USD/JPY: Traders should track BoJ bond announcements, rate guidance, and incoming US data.
• AUD/USD: Direction hinges on trade diplomacy and Fed signals, with upside potential if sentiment improves.

Stay nimble and watch for real-time shifts in macro drivers — both USD/JPY and AUD/USD could offer breakout opportunities in the coming sessions.

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