AUD/JPY rises to near 103.50 amid risk-on sentiment

• AUD/JPY extends its gains due to improved risk appetite on Wednesday.
• The Australian government aims to address headline inflation and alleviate cost-of-living pressures by allocating billions in funding.
• Japan’s Finance Minister Shunichi Suzuki will coordinate with the BoJ regarding the FX market to take possible measures if necessary.

AUD/JPY continues its winning streak, hovering around 103.70 during the European session on Wednesday due to the improved risk appetite. The Australian Budget for 2024-25 has returned to a deficit after recording a surplus of $9.3 billion in 2023-24. The Australian government aims to tackle headline inflation and alleviate the cost of living pressures by allocating billions to reduce energy bills and rent, alongside initiatives to lower income taxes.

On Wednesday, the Australian Bureau of Statistics released the Wage Price Index (Q1), an indicator of labor cost inflation. The index showed a 0.8% increase in the first quarter, falling slightly below the anticipated rise of 0.9%. On a year-over-year basis, it saw a 4.1% increase, also slightly lower than the expected 4.2% rise.

On the JPY front, Japan’s Finance Minister Shunichi Suzuki stated on Tuesday that the government is collaborating with the Bank of Japan to ensure alignment in policy objectives regarding foreign exchange. He further noted that they are implementing all feasible measures to closely monitor movements in the Japanese Yen.

Japan's 10-year government bond yield remains steady at around 0.95%, marking its highest level in over six months. This comes as the Bank of Japan (BoJ) reduced the amount of Japanese government bonds it would purchase this week, marking the first such move since lifting its negative interest rate policy in March.

The interest rate differential between Japan and other major economies has encouraged investors to borrow the Japanese Yen (JPY) and invest in higher-yielding currencies, leading to a depreciation of the JPY.