Yen Steadies, Aussie Rises as Tokyo Inflation Slows and US-China Trade Optimism Builds

Highlights:

Tokyo CPI cools to 2.9% but stays above BoJ’s 2% goal
BoJ keeps rate hike door open for 2025 amid global uncertainty
AUD/USD gains on upbeat trade sentiment and China-driven optimism
All eyes on US durable goods data and Beijing stimulus cues

Tokyo Inflation Slows, But Rate Hikes Still in Play

The Japanese Yen saw limited movement on Thursday after Tokyo’s annual inflation rate dropped to 2.9% in July, down from 3.1% in June. Despite this cooling, core inflation remains above the Bank of Japan’s (BoJ) 2% target — keeping the option for rate hikes in 2025 on the table.

BoJ Deputy Governor Shinichi Uchida reiterated that current low real interest rates allow the central bank flexibility to raise policy rates, depending on future economic conditions and inflation. The recent US-Japan trade deal, which includes a 15% tariff on Japanese exports, adds complexity to the BoJ’s outlook as policymakers assess its impact on the domestic economy.

The USD/JPY pair briefly dipped to 146.96, down from 147.11, following the inflation release.

USD/JPY Outlook: Durable Goods Data Could Be a Game-Changer

Investors now turn to US durable goods orders, expected to rise 0.1% MoM (excluding transportation). A stronger-than-expected print could support the US Dollar, pushing USD/JPY toward 147.50 and the 200-day EMA.

Key scenarios:

🔻 Bearish USD/JPY: Weaker US data or hawkish BoJ tone → downside toward 145.00
🔺 Bullish USD/JPY: Strong US data or dovish BoJ → test of 147.50

Aussie Dollar Benefits from Trade Hopes and China Outlook

The Australian Dollar (AUD/USD) advanced for a fifth straight session, touching 0.6619, its highest level in eight months, supported by renewed optimism over US-China trade talks and improved domestic data.

Investors are watching closely as both nations prepare for high-level talks in Stockholm, while recent comments from President Trump and the Chinese leadership signal a willingness to extend the current tariff pause. These developments could boost Chinese demand — crucial for Australia, given that China accounts for one-third of Aussie exports.

Meanwhile, Reserve Bank of Australia (RBA) Governor Michele Bullock acknowledged uncertainty but noted that China’s fiscal policy could cushion Australia from global headwinds.

AUD/USD Forecast: Key Levels and Scenarios

Support Levels:

Primary: 0.6550 (near 9-day EMA)
Deeper: 0.6503 (50-day EMA)

Resistance Levels:

Immediate: 0.6650
Higher: 0.6680 (ascending channel resistance)

Key Drivers to Watch:

🔻 Bearish AUD/USD: Renewed US-China tensions or weak China data
🔺 Bullish AUD/USD: Trade deal breakthroughs or fresh stimulus from Beijing

Final Word

While both the Yen and Aussie Dollar are influenced by central bank outlooks and inflation trends, trade policy remains the dominant theme. Traders should monitor US durable goods data and Beijing’s next fiscal steps, as these will shape the path for both USD/JPY and AUD/USD heading into Q3.

Stay Updated with Daily Forex Pakistan.

Yasher Rizwan