AUD/JPY hovers around 96.00 after pulling back from five-month highs
- AUD/JPY has reached its new five-month high at $96.21 on Wednesday.
- The Japanese Yen is under pressure as US-Japan trade negotiations show signs of strain.
- The AUD may receive support as the RBA's Bullock warned that inflation risks persist.
AUD/JPY continues its winning streak for the third successive session, trading around 95.80 during the European hours on Wednesday. The currency cross has marked its fresh five-month high at $96.21 as the Japanese Yen (JPY) struggles as trade negotiations between the United States (US) and Japan showed signs of strain, particularly over Japan’s rice market protections. This follows US President Donald Trump’s announcement of a 25% tariff on Japanese goods, effective August 1.
Japanese Prime Minister Shigeru Ishiba called the tariff decision “truly regrettable,” but reaffirmed Japan’s commitment to continue negotiations with Washington in pursuit of a mutually beneficial agreement.
However, the decline in the AUD/JPY cross could be restrained as the Australian Dollar (AUD) struggles amid rising odds of a Reserve Bank of Australia’s rate cut in August. A Reuters survey poll indicated that all 30 economists forecast the RBA to cut the cash rate by 25 basis points to 3.60% in August. Additionally, Australia’s four major banks, ANZ, CBA, NAB, and Westpac, also backed the rate cut call.
The AUD may regain its ground due to cautious remarks from the Reserve Bank of Australia (RBA) Governor, Michele Bullock said in a conference after the policy decision. Bullock stated that inflation risks persist due to elevated unit labor costs and weak productivity, which could push inflation above forecasts.
RBA Deputy Governor Andrew Hauser said on Wednesday that the global economy is facing an enormous amount of uncertainty. Hauser expressed surprise at how markets are shrugging and moving on. He also added that tariff effects on the global economy are profound and are likely to weigh on growth.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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