AUD/JPY rises above 96.00 amid uncertain BoJ outlook, easing RBA rate cut odds
- AUD/JPY rises amid uncertainty over when the Bank of Japan will deliver its next rate hike.
- Japanese officials rejected US Treasury Secretary Bessent’s claim the BoJ is 'behind the curve,' calling it pressure to hike.
- The AUD finds support as upbeat Australian jobs data reduces the urgency for an RBA rate cut in September.
AUD/JPY appreciates after registering losses in the previous two consecutive sessions, trading around 96.10 during the Asian hours on Monday. The currency cross gains ground as the Japanese Yen (JPY) struggles amid ongoing uncertainty over the likely timing of the next interest rate hike by the Bank of Japan (BoJ).
Japan’s economy outpaced forecasts in the second quarter, lifted by net exports despite headwinds from US tariffs. Japan's Economy Minister Ryosei Akazawa stated on Friday that the economy is recovering modestly. However, Akazawa highlighted that risks from US trade policies could weigh on domestic growth, while rising prices could dampen consumer sentiment and hurt private consumption.
Meanwhile, Japanese officials dismissed US Treasury Secretary Scott Bessent’s claim that the Bank of Japan is 'behind the curve,' framing it as pressure to hike rates. However, BoJ Governor Kazuo Ueda maintained caution, stressing underlying inflation remains below the 2% target.
The AUD/JPY cross also draw support from improved Australian Dollar (AUD) following an upbeat jobs data for July. The recent employment figures eased concerns about a weakening labor market, lessening the urgency for the Reserve Bank of Australia (RBA) to continue with another rate cut in September.
RBA Governor Michele Bullock stated last week that current forecasts suggest the cash rate may need to be reduced to ensure price stability. However, Bullock emphasized the Board’s meeting-by-meeting approach and refrained from making any commitments on rate moves should financial markets experience a bout of volatility.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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