AUD/JPY jumps to near 94.50 as investors lack clarity on BoJ’s monetary policy outlook
- AUD/JPY advances for the fourth trading day in a row, while the Japanese Yen underperforms its peers on Tuesday.
- BoJ Ueda is confident about further monetary tightening if the underlying inflation returns to their 2% target.
- Investors await the outcome of the US-China trade meeting in London.
The AUD/JPY pair climbs to near 94.50 during Asian trading hours, extending its winning streak for the are fourth trading day on Tuesday. The cross strengthens as the Japanese Yen (JPY) underperforms its peers, while investors turning cautious about whether the Bank of Japan (BoJ) will raise interest rates again this year.
Japanese Yen PRICE Today
The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.20% | 0.09% | 0.23% | 0.04% | -0.07% | -0.05% | 0.08% | |
| EUR | -0.20% | -0.10% | 0.00% | -0.13% | -0.25% | -0.25% | -0.10% | |
| GBP | -0.09% | 0.10% | 0.06% | -0.03% | -0.15% | -0.15% | 0.00% | |
| JPY | -0.23% | 0.00% | -0.06% | -0.15% | -0.32% | -0.36% | -0.22% | |
| CAD | -0.04% | 0.13% | 0.03% | 0.15% | -0.13% | -0.12% | 0.04% | |
| AUD | 0.07% | 0.25% | 0.15% | 0.32% | 0.13% | 0.02% | 0.15% | |
| NZD | 0.05% | 0.25% | 0.15% | 0.36% | 0.12% | -0.02% | 0.16% | |
| CHF | -0.08% | 0.10% | -0.01% | 0.22% | -0.04% | -0.15% | -0.16% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).
On Monday, Japan’s Prime Minister Shigeru Ishiba warned that rising interest rates by the BoJ could limit the government’s borrowing power by increasing the cost of funds, an element that could hinder Tokyo’s spending plans. The statement from PM Ishiba came at a time when Tokyo has cited concerns over the economic outlook due to the fallout of the tariff policy by United States (US) President Donald Trump.
However, BoJ Governor Kazuo Ueda has kept the door open for further monetary policy tightening. Earlier in the day, Kazuo Ueda told Parliament that “we will raise interest rates if we have enough confidence that underlying inflation nears 2% or moves around 2%.” According to a report from Reuters, the BoJ has signaled that the underlying inflation, a specific gauge of price pressures based on demand, has remained short of its annual target, even as broader consumer inflation trended well above 2% for at least the past three years.
Meanwhile, the Australian Dollar (AUD) outperforms its peers amid optimism that trade discussions between the US and China in London, which have entered their second day, will end on a positive note.
White House economic adviser Kevin Hassett expressed confidence in an interview with CNBC on Monday that “export controls to be eased and rare earths to be released in volume” after the meeting.
Given that Australia is the leading trading partner of China, an improvement in the Chinese economic outlook strengthens the Aussie Dollar.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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