AUD/JPY faces selling pressure below 95.00 amid cautious mood
- AUD/JPY loses momentum to around 94.95 in Wednesday’s early European session, down 0.35% on the day.
- Japan reported its exports fell slightly more than expected in July
- The Chinese central bank left the Loan Prime Rates unchanged in August.
The AUD/JPY cross attracts some sellers to near 94.95 during the early European session on Wednesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) amid the cautious mood in the markets. Investors will focus on Japan’s National Consumer Price Index (CPI) for July, which is due later on Friday.
Investors remain cautious over ongoing Russia-Ukraine peace negotiations. US President Donald Trump said on Tuesday that arrangements were being made for a meeting between Russian President Vladimir Putin and Zelenskiy, which could lead to a trilateral summit involving all three leaders. Any signs of escalating tensions or lack of progress of the peace deal could underpin the safe-haven currency like the JPY.
Japan reported its exports fell slightly more than expected in July, pressured by higher tariffs on goods shipped to the US. Data released by the Ministry of Finance showed Japan’s Exports fell 2.6% YoY in July, compared to a decline of 0.5% in June, worse than the estimates of 2.1%. This report fuels concerns over the Japanese economic outlook, which might cap the upside for the JPY and create a tailwind for the cross.
The Australian Dollar struggles to gain ground after the People’s Bank of China (PBOC) decided to leave its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively.
Analysts expect the Chinese government to roll out additional fiscal stimulus measures if the economy weakens later this year. Citi projects a 500 billion yuan quasi-fiscal injection to support demand. Any positive developments surrounding fresh Chinese stimulus plans could lift the China-proxy Aussie, as China is a major trading partner of Australia.
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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