AUD/JPY hovers around 91.00, eyes on renewed Australia-EU trade negotiations
- AUD/JPY finds support amid renewed optimism over trade negotiations between Australia and the European Union.
- EU Trade Commissioner Maros Sefcovic has suggested establishing a new timeline for talks with Australian Trade Minister Don Farrell.
- Japan's Producer Price Index rose by 0.4% MoM and surged 4.2% YoY in March, exceeding market expectations.
The AUD/JPY pair recovered its daily losses and is trading above the 91.00 mark during Thursday’s Asian session. The Australian Dollar (AUD) is finding support amid optimism over renewed trade negotiations between Australia and the European Union (EU).
In a one-hour video call on Wednesday evening, EU officials agreed to revive the stalled trade talks with Australia. EU Trade Commissioner Maros Sefcovic proposed setting a fresh timeline for discussions with Australian Trade Minister Don Farrell. The previous round of negotiations collapsed two years ago over disagreements on agricultural market access for the EU’s 450 million consumers.
However, the AUD faced headwinds amid escalating trade tensions between the US and China. US President Donald Trump announced an immediate tariff hike on Chinese imports to 125%, following China’s retaliatory increase to 84% on US goods. The renewed trade conflict clouds the outlook for the commodity-linked AUD, given Australia’s strong trade ties with China.
The upside in AUD/JPY cross could be limited as the Japanese Yen (JPY) maintains a bullish tone. This is supported by market expectations that the Bank of Japan (BoJ) will continue raising interest rates, following stronger-than-expected Producer Price Index (PPI) data.
Japan's PPI climbed 0.4% in March and surged 4.2% year-over-year, surpassing market expectations. The stronger-than-anticipated data may feed into higher consumer prices, reinforcing the case for further policy tightening by the Bank of Japan (BoJ) and lending support to the Japanese Yen.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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