Japanese Yen and Aussie Dollar Forecasts: Core Inflation Rises—BoJ Rate Hike Odds Shift

Japan Inflation Fuels BoJ Rate Hike Bets

Core inflation in Japan jumps, reigniting bets on a surprise BoJ move by year-end. Inflation numbers from Japan fueled speculation about the timing of a Bank of Japan rate hike on Friday, June 20, affecting USD/JPY trends.

Japan’s annual inflation rate softened from 3.6% in April to 3.5% in May. Meanwhile, core inflation, which excludes fresh food, rose from 3.5% to 3.7%. The annual inflation rate (Ex-Food and Energy) increased from 3% to 3.3% in May.

The upswing in core inflation and the inflation rate (Ex-Food and Energy) could raise the chance of the Bank of Japan hiking rates in Q4 2025. Earlier this week, the BoJ left interest rates at 0.5%, signaling a potentially extended pause. BoJ Governor Kazuo Ueda remarked on tariff-driven downside risks to Japan’s economy. However, the BoJ Governor also highlighted upside risks to prices, leaving rate hikes on the table. He stated:

“Coupled with already rising food prices, oil price moves caused by tensions in Iran and Israel, if they persist, could risk affecting inflation expectations and underlying inflation. So we must scrutinize developments carefully.”

While underlying inflation cooled in May, a prolonged Israel-Iran conflict could disrupt crude oil, pushing oil prices higher. Friday’s data aligned with the BoJ governor’s concerns about rising food prices pushing core inflation higher.

According to the June 2-10 Reuters poll on the BoJ’s rate hike outlook, 38 of 58 economists expected interest rates to remain at 0.5% in 2025. 40 of 51 economists signaled a 25-basis point rate hike in Q1 2026. These projections could shift in July.

The USD/JPY pair dipped following the data, albeit modestly, from 145.293 to a low of 145.147.

USD/JPY Daily Outlook: US Manufacturing in Focus

Later in the session, the Philly Fed Manufacturing Index will give insights into the early effects of Trump’s trade policies on production. Economists forecast the Index to rise from -4 in May to -1 in June.

A higher reading could ease concerns about a US recession, given manufacturing contributes around 20% to GDP, boosting US dollar demand. A stronger US dollar may drive USD/JPY toward 146 and the May 29 high of 146.285. Conversely, a softer print may raise expectations of a Q3 Fed rate cut, dragging the pair toward 142.5.

While the manufacturing sector data will influence US dollar appetite, trade developments and news updates from the Middle East will continue driving USD/JPY trends.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: US involvement in the Israel-Iran war, hawkish BoJ cues, or weak US data could drag USD/JPY toward 142.5.
• Bullish USD/JPY Scenario: Progress toward an Iran-Israel ceasefire, dovish BoJ signals, or strong US data may send the pair above 146.

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

AUD/USD in Focus: The PBoC and the Middle East Conflict to Fuel Aussie Dollar Appetite

Meanwhile, the People’s Bank of China and the Iran-Israel war will influence Aussie dollar demand and AUD/USD trends. Economists expect the PBoC to leave the 1-year and 5-year Loan Prime Rates (LPR) at 3% and 3.5% on June 20.

A surprise LPR cut could support the Aussie indirectly by boosting Chinese consumption, a key driver of Australian exports. Given China accounts for one-third of Aussie exports, a pickup in demand may ease concerns about the economy and pressure on the RBA to cut rates sharply.

In May, RBA Governor Michele Bullock warned about the downside risks to the Aussie economy, stating:

“Australia’s economy could easily be compromised if a trade war between the US and China escalates. Depending on where we end up on trade developments, there might be more interest rate adjustments.”

Meanwhile, the Israel-Iran conflict will also affect AUD/USD trends. An escalation in the conflict may push the pair toward the June 19 low of $0.64451. In contrast, hopes of a ceasefire could lift AUD/USD toward $0.6550.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: US involvement in the Iran-Israel conflict or dovish RBA signals may drag AUD/USD toward $0.64500.
• Bullish AUD/USD Scenario: Progress toward a ceasefire, PBoC rate cuts, or hawkish RBA cues could send AUD/USD toward the June 16 high of $0.65517.

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

Aussie Dollar Daily Outlook: Manufacturing Sector Activity and Rate Differentials

Later today, the Philly Fed Manufacturing Index may drive US-Aussie interest rate differentials and AUD/USD trends.

A pickup in manufacturing sector activity may support the Fed’s wait-and-see stance, widening rate differentials favoring the US dollar. A wider rate differential could push AUD/USD toward $0.6450 and the 50-day Exponential Moving Average (EMA).

Conversely, a weaker print may revive recession fears, narrowing the rate differential. A narrower rate differential could send the pair toward $0.65500 and the June 16 high of $0.65517.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy commentary and US-Japan trade headlines.
• USD/JPY and AUD/USD: US data, trade developments, and Middle East conflict-related headlines.
• AUD/USD: RBA policy cues and PBoC moves.

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