Japanese Yen and Aussie Dollar Forecasts: Israel-Iran Conflict and the Fed in Focus

Exports Underscore Yen Pressure Amid BoJ Dilemma

Trade data from Japan offered insights into the impact of US tariffs on demand, influencing USD/JPY trends early in the session on Wednesday, June 18.

Exports fell 1.7% year-on-year (YoY) in April after rising 2% in March, while imports tumbled 7.7% (March: -2.2%). Economists had expected exports to drop 3.8% and imports to decline 6.7%.

According to figures released by the Ministry of Finance:

• Exports to China fell 8.8% YoY in April.
• Exports to the US slid by 11.1%, while imports from the US were down 13.5%.

President Trump’s tariff policies likely impacted trade terms with the US and potentially China. Deteriorating trade terms may pressure the Bank of Japan to keep interest rate hikes on hold for longer. Japan’s economy stalled in Q1 2025, with external demand down 0.8% in the quarter, impacting the economic momentum.

Notably, import trends suggested a sharp drop in domestic demand, another potential red flag for the BoJ.

The trade data aligned with the BoJ’s view on trade. On Tuesday, June 17, the Bank of Japan left interest rates at 0.5%. On trade, the BoJ noted:

“Japan’s economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits.”

Easing bets on a 2025 BoJ rate hike and ongoing uncertainty about a US-Japan trade deal are headwinds for the Yen. On the other hand, the escalation in the Iran-Israel conflict and rising expectations of a Q1 2026 BoJ rate hike are tailwinds.

USD/JPY Daily Outlook: US Jobless Claims and the Federal Reserve in Focus

Later in the session, US jobless claims data will draw interest ahead of the FOMC interest rate decision. Economists forecast initial jobless claims will fall from 248k (week ending June 7) to 245k (week ending June 14). A lower claims reading could support a less dovish Fed stance, potentially pushing USD/JPY toward 146. Conversely, a sharp rise in claims may revive Fed rate cut bets, pulling the pair below the 50-day EMA toward the June 13 low of 142.788.

While the claims data will influence US dollar demand, the FOMC’s interest rate decision, economic projections, and press conference will be pivotal. Upward revisions to inflation, GDP, and Fed Funds Rate projections may send USD/JPY toward the May 29 high of 146.285. A sustained move through 146.285 would bring the 149.358 resistance level into sight.

Conversely, downward revisions to inflation, GDP, and Fed Funds Rate projections may push USD/JPY toward the 140.309 support level.

Beyond the Fed, trade developments and Israel-Iran war-related developments will continue influencing USD/JPY trends.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Escalation in the Israel-Iran war, hawkish BoJ signals, or dovish Fed projections could push USD/JPY toward 140.
• Bullish USD/JPY Scenario: A de-escalation in the Iran-Israel conflict, dovish BoJ rhetoric, or hawkish Fed projections may drive the pair above 146.

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

AUD/USD in Focus: Middle East Conflict to Drive Aussie Dollar Demand

Meanwhile, the Iran-Israel conflict will continue to impact demand for commodity currencies, including the Aussie dollar. The AUD/USD pair slid 0.73% on June 17 as markets reacted to an escalation in the conflict, reflecting Aussie dollar sensitivity to geopolitical risks.

On June 18, the Kobeissi Letter reported:

“The US is reportedly considering strikes as a possibility among ‘a range of options’.”

President Trump called for Iran’s unconditional surrender overnight while declaring he knew the location of Iran’s Supreme Leader. Potential US involvement in the conflict could fuel fears of a broader regional war, impacting risk sentiment further. However, a de-escalation and a move toward a US-Iran nuclear agreement could boost demand for risk assets and commodity currencies.

AUD/USD: Key Scenarios to Watch

• Bearish AUD/USD Scenario: Escalation in the Iran-Israel conflict or dovish RBA cues may push AUD/USD toward $0.64500.
• Bullish AUD/USD Scenario: De-escalation in the Middle East or hawkish RBA signals could drive 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: The Fed to Drive Rate Differentials

Later today, the FOMC interest rate decision, economic projections, and press conference will drive US-Aussie interest rate differentials and AUD/USD trends.

Hawkish interest rate projections would widen the rate differential, favoring the US dollar. A wider rate differential may drag AUD/USD below $0.64500, bringing the 50-day and 200-day EMAs into play. Conversely, a more dovish outlook could narrow the rate differential, potentially driving AUD/USD above $0.65 toward $0.65517.

Key Market Drivers to Watch Today:

• USD/JPY: BoJ policy rhetoric and US-Japan trade headlines.
• USD/JPY and AUD/USD: The Fed, trade developments, and Israel-Iran war-related news.
• AUD/USD: RBA policy signals and Beijing’s stimulus news.

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