Japanese Yen and Aussie Dollar Forecast: Japan Inflation and Retail Sales Boosts the Yen

Inflation, Retail Sales, and Labor Market Data Spotlights USD/JPY

It was a busy start to the Friday, May 30 session for the Japanese Yen and USD/JPY pair. Crucial inflation, retail sales, and unemployment data potentially influenced sentiment toward the Bank of Japan rate path.

Tokyo CPI (excluding food and energy) rose 2.1% year-on-year in May, up from 2% in April, surpassing the BoJ’s 2% target.

Japan’s unemployment rate held steady at 2.5% in April, supporting wage growth and household spending.

However, retail sales unexpectedly rose 0.5% month-on-month in April after sliding 1.2% in March, signaling a potential economic recovery and pickup in near-term inflation. Given private consumption contributes over 50% to Japan’s GDP, rising household spending eased the possibility of a technical recession. Japan’s economy contracted by 0.2% in Q1, with private consumption falling 0.7%.

This week, BoJ Governor Kazuo Ueda signaled support for rate hikes if inflation moved sustainably toward the target and economic growth aligns with forecasts.

The USD/JPY pair moved from 143.913 to 143.584 after the release of the data, reflecting sentiment toward the upbeat data.

While today’s data will draw the BoJ’s attention, trade developments remain critical. Renewed trade tensions could trigger a flight for safety, boosting Yen demand, while easing tensions may drive USD/JPY higher.

USD/JPY Daily Outlook: Inflation and the Fed in Focus

Later in the session, the highly influential US Personal Income and Outlays Report will influence US dollar demand and USD/JPY trends. Economists expect the Core PCE Price Index to rise 2.5% year-on-year in April, down from 2.6% in March.

Softer inflation may raise bets on a Q3 Fed rate cut, sending USD/JPY toward the May 27 low of 142.108. Conversely, a higher inflation reading could signal a more hawkish Fed stance, potentially driving the pair toward the May 20 high of 145.507.

Beyond inflation, investors should consider personal income and spending trends. Rising income and spending may fuel inflationary pressures, delaying Fed rate cuts. On the other hand, weakening income and spending could lead to softer inflation, supporting a more dovish Fed rate path.

Other stats include finalized Michigan Consumer Sentiment and Inflation Expectation numbers. However, unless there is a material deviation from the preliminary data, these will likely play second fiddle to the Personal Income and Outlays Report.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Renewed trade tensions, hawkish BoJ signals, softer US inflation, or dovish Fed rhetoric could drag USD/JPY below 142.108 toward 140.
• Bullish USD/JPY Scenario: Easing trade friction, a dovish BoJ, hotter US inflation, or hawkish Fed signals may lift the pair toward 145.507.

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

AUD/USD in Focus: Retail Sales and the RBA Rate Path

On May 30, Aussie retail sales figures will put the Australian economy and AUD/USD center stage. Economists expect retail sales to rise 0.3% month-on-month in April, matching March’s increase.

Higher spending may fuel demand-driven inflation, potentially tempering bets on multiple RBA rate cuts. A less dovish RBA stance might send AUD/USD toward $0.65. However, a softer reading could fuel speculation about multiple rate cuts, pushing the pair toward $0.64.

RBA Governor Michele Bullock raised concerns about lackluster household spending during the monetary policy press conference, stating:

“RBA expects lower rates and rising wages to boost household consumption. But spending has not picked up as much as expected… The Australian labor market and household spending remain the most significant domestic risks.”

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Falling Aussie retail sales or dovish RBA cues may send AUD/USD below the 200-day Exponential Moving Average (EMA) toward $0.64.
• Bullish Aussie dollar Scenario: Rising retail sales or hawkish RBA rhetoric could drive the pair toward the May 26 high of $0.65370.

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

Aussie Dollar Daily Outlook: US Inflation and the Fed Rate Path

Later today, US inflation data will influence US-Aussie interest rate differentials and AUD/USD. Hotter inflation would likely widen the US-Aussie interest rate differential in favor of the US dollar. A wider differential could send AUD/USD below the 200-day EMA and expose the $0.63623 support level.

Conversely, softer inflation may narrow the rate differential and push AUD/USD toward $0.65370

Beyond the data, trade developments will continue to drive price volatility. On May 23, AUD/USD soared from $0.64069 to $0.65370 following Trump’s EU tariff threats. However, a delay to EU tariffs left the pair below $0.64500 on May 27.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy outlook, Japan economic data, and trade negotiations.
• USD/JPY and AUD/USD: Fed commentary, US Personal Income and Outlays Report, and trade sentiment.
• AUD/USD: Aussie retail sales, RBA rate cut bets, and China’s policy direction.

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