AUD/JPY holds positive ground above 94.00 amid improved risk sentiment
- AUD/JPY gathers strength to near 94.30 in Wednesday’s early European session, up 0.33% on the day.
- Receding safe-haven demand continues to weigh on the Japanese Yen.
- Australia’s monthly CPI rose by 2.1% YoY in May, softer than expected.
The AUD/JPY pair attracts some buyers to around 94.30 during the early European session on Wednesday. The Japanese Yen (JPY) softens against the Euro (EUR) due to growing optimism that a ceasefire between Israel and Iran will hold after it was touted by US President Donald Trump.
The Israel-Iran ceasefire went into force on Tuesday and seems to be holding for the time being, despite an Israeli attack on Tehran and an Iranian missile strike. The de-escalation of tensions in the Middle East could undermine the JPY and create a tailwind for the cross in the near term.
However, Israeli Prime Minister Benjamin Netanyahu warned that Israel “will strike again” if Iran “thinks of rebuilding” its nuclear program. Any signs of renewed escalation could boost the safe-haven flows and benefit the JPY.
Data released by the Australian Bureau of Statistics (ABS) on Wednesday showed that the country’s monthly Consumer Price Index (CPI) rose by 2.1% YoY in May versus 2.4% prior. This figure came in softer than the expectation of 2.3% growth in the reported period.
Softer Australian CPI inflation and weaker Gross Domestic Product (GDP) reports reinforce expectations of the Reserve Bank of Australia’s (RBA) rate cut in July. This, in turn, might drag the Aussie lower against the JPY. Financial markets have priced in nearly an 80% chance of a 25 basis points (bps) rate cut by the RBA in the July meeting.
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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