Japanese Yen and Aussie Dollar Forecasts: Japan Recession Fears Hit BoJ Rate Outlook

Japan Household Spending to Drive Rate Hike Bets

On Friday, June 6, crucial economic data from Japan put the USD/JPY pair and the Bank of Japan in the spotlight. Household spending tumbled 1.8% month-on-month in April, reversing a 0.4% increase in March. Economists expected a 0.8% drop.

Weaker household spending may dampen demand-driven inflation. Given private consumption contributes over 50% to Japan’s GDP, a slump in private consumption may also fuel speculation about a Japanese recession. A softer inflation outlook and rising recession risks would likely lower bets on a 2025 Bank of Japan rate hike, sending USD/JPY higher.

In Q1, Japan’s economy contracted by 0.2% as private consumption stalled and external demand fell by 0.8%. Sentiment toward inflation and the economic outlook are pivotal to the BoJ’s policy stance. BoJ Governor Kazuo Ueda recently left rate hikes on the table if inflation and the economy align with projections.

Beyond the household spending data, trade developments remain a key driver. An escalation in trade tensions may boost demand for safe-haven assets such as the Yen, pressuring USD/JPY. However, easing trade tensions could push the pair higher.

USD/JPY Daily Outlook: US Jobs Report in Focus

Later in the session, the all-important US Jobs Report will drive Fed rate cut bets and US dollar demand. Economists forecast nonfarm payrolls to rise 130k in May, down from 177k in April. Additionally, economists expect average hourly earnings to rise 3.7% year-on-year after rising 3.8% in April and for the unemployment rate to remain at 4.2%.

Rising unemployment, lower nonfarm payrolls, and softer wage growth may raise expectations of a Q3 Fed rate cut. A deteriorating labor market could impact consumer sentiment and spending. Weaker spending may dampen inflationary pressures and impact the economy, given its over 60% contribution to US GDP. Rising US recession risks and more a dovish Fed stance could drag USD/JPY toward the June 3 low of 142.367.

Conversely, better-than-expected data could sink bets on a 2025 Fed rate cut as concerns about tariffs raising import prices linger. A more hawkish Fed rate path may drive USD/JPY toward 145.

Beyond the data, traders should monitor Fed speeches. Fed reactions to the Jobs Report and views on rate cuts could influence US dollar sentiment.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: An escalation in trade tensions, hawkish BoJ signals, weaker US data, or dovish Fed commentary could drag USD/JPY toward 142.367.
• Bullish USD/JPY Scenario: Easing trade tensions, dovish BoJ cues, upbeat US data, or hawkish Fed rhetoric may lift the pair toward 145.

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

AUD/USD in Focus: Housing Sector Data

Meanwhile, Aussie housing data on June 6 may influence AUD/USD trends. According to preliminary data, housing approvals jumped 3.1% month-on-month in April after falling 1.9% in March. Meanwhile, building permits slid 5.7% following a 7.1% slump in March.

A rebound in house approvals could support a rebound in building permits and rising demand for new builds. However, building permit trends remain crucial as not all approved developments proceed to construction.

Increased housing supply could dampen housing services inflation, supporting a more dovish RBA rate path and dragging AUD/USD toward $0.6450. Conversely, weakening supply may drive rents higher, potentially fueling inflation. In this scenario, the RBA could take a less dovish rate path, driving AUD/USD toward $0.6550.

Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, remarked on recent house price trends that reflect supply-demand dynamics, stating:

“Data for May shows Australian home prices up another 0.5%mom with all cities up as rate cuts & the anticipation of more to come boost demand along with the ongoing shortage of housing. Poor affordability will likely constrain gains but expect further modest gains this yr.”

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Weak housing sector data or dovish RBA rhetoric may drag AUD/USD below $0.6450 toward the 200-day and 50-day Exponential Moving Averages (EMA).
• Bullish Aussie dollar Scenario: Strong housing demand or hawkish RBA cues could send the pair toward $0.6550.

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

Aussie Dollar Daily Outlook: US Jobs Report and the Fed in Focus

Later today, US labor market data will drive US-Aussie interest rate differentials and AUD/USD. A stronger-than-expected US Jobs Report would temper Fed rate cut bets and widen the US-Aussie interest rate differential in favor of the US dollar. A widening rate differential may push AUD/USD below $0.6450 toward the 200-day and 50-day EMAs.

Conversely, weaker data may narrow the rate differential and drive AUD/USD above $0.6550 toward $0.66.

Beyond the economic data, Fed commentary and trade headlines will continue to fuel AUD/USD volatility.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy outlook, Japan household spending data, and trade updates.
• USD/JPY and AUD/USD: Fed signals, US Jobs Report, and trade headlines.
• AUD/USD: Aussie housing data, RBA policy stance, 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.