AUD/JPY softens to near 94.00 amid risk-off sentiment
- AUD/JPY weakens to near 94.00 in Thursday’s Asian session.
- Australian Unemployment Rate steadied at 4.1% in May, as expected.
- Risk-off sentiment amid escalating Middle East tensions boosts the Japanese Yen.
The AUD/JPY cross attracts some sellers to around 94.00 during the Asian trading hours on Friday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) amid the rising geopolitical tensions in the Middle East. Traders will keep an eye on Japan’s May National Consumer Price Index (CPI) data and Bank of Japan (BoJ) Monetary Policy Meeting Minutes, which are due later on Friday.
Data released by the Australian Bureau of Statistics (ABS) on Thursday revealed that the country’s Unemployment Rate steadied at 4.1% in May, in line with the market consensus. Meanwhile, the Employment Change came in at -2.5K in May versus 87.6K prior (revised from 89K), compared with the consensus of 25K.
The Australian employment data fails to boost the Aussie as traders closely monitor the developments surrounding Israel-Iran tensions. The fear that direct US involvement would widen the conflict boosts the safe-haven flows, supporting the Japanese Yen.
Bloomberg reported early Thursday, citing unnamed sources, that “US officials prepare for possible Iran strike in coming days.” Late Tuesday, US President Trump said that he approved of attack plans for Iran but held them to see if Tehran would abandon its nuclear program. Trump emphasized his insistence on Iran’s unconditional surrender, but Iranian Supreme Leader Ayatollah Ali Khamenei rejected the US demand.
On the other hand, reduced bets for the Bank of Japan (BoJ) this year might weigh on the JPY and create a tailwind for AUD/JPY. The BoJ's cautious approach to unwinding its decade-long monetary stimulus has prompted traders to push back their expectations about the likely timing of the next interest rate hike to the first quarter of 2026.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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