AUD/JPY weakens to near 96.50 on optimism over trade deal
- AUD/JPY softens to around 96.60 in Thursday’s Asian session, losing 0.13% on the day.
- RBA’s Bullock said wary of cutting rates until it has more evidence on inflation.
- Fresh US-Japan trade agreement supports the Japanese Yen, but rising political uncertainty in Japan might cap its upside.
The AUD/JPY cross declines to near 96.60 during the Asian trading hours on Thursday. The Australian Dollar (AUD) remains weak against the Japanese Yen (JPY) despite the hawkish remarks from the Reserve Bank of Australia (RBA) policymakers.
RBA Governor Michele Bullock said on Thursday that the central bank is wary of cutting interest rates until it has gathered more evidence that inflation remains on a path back towards the 2.5% target. Bullock further stated that labor demand remains strong while core inflation is easing gradually. Her hawkish comments, however, fail to boost the Aussie as traders continue to assess the developments surrounding a new US trade deal.
US Treasury Secretary Scott Bessent said on Thursday that he will meet with Chinese officials in Stockholm next week to discuss an extension to the deadline for negotiating a trade deal. Investors remain cautious on how tariff deals will play out.
Optimism surrounding the fresh US-Japan trade agreement provides some support to the Japanese Yen and acts as a headwind for the cross. US President Donald Trump on Wednesday announced a “massive” deal with Japan that includes “reciprocal” tariffs of 15% on the country’s exports to the US. The new agreement is notably lower than the 25% previously threatened by Trump.
On the other hand, rising political uncertainty in Japan might exert some selling pressure on the JPY. Japanese Prime Minister Shigeru Ishiba on Wednesday denied plans to resign. The speculation came after the ruling coalition’s loss of its upper house majority in weekend elections, heightening fears about leadership stability.
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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