Australian Dollar falls vs Japanese Yen as RBA Minutes flag inflation, growth risks
- AUD/JPY depreciates as RBA Minutes warned that the Middle East conflict could fuel inflation and weaken economic growth.
- RBA's Sarah Hunter warned that high energy costs could quickly boost consumer prices and shift inflation expectations.
- Japan's Minoru Kiuchi pledged swift action to protect households and businesses from Middle East conflict impacts and price hikes.
AUD/JPY has offered its recent gains registered in the previous day, trading around 113.40 during the early European hours on Tuesday. The currency cross depreciates as the Australian Dollar (AUD) remains subdued, as the Reserve Bank of Australia (RBA) Meeting Minutes indicated that the Middle East conflict could exacerbate inflationary pressures and weaken economic growth.
According to Reuters, RBA Assistant Governor Sarah Hunter stated on Tuesday that the central bank is concerned that higher energy costs will quickly feed into consumer prices, given the stretched domestic economy, potentially causing a significant shift in inflation expectations.
The downside of the AUD/JPY cross could be restrained as the Japanese Yen (JPY) holds losses despite stronger-than-expected preliminary economic growth data from Japan. Japan’s Gross Domestic Product (GDP) grew 0.5% quarter-on-quarter in the first quarter of 2026, accelerating from a downwardly revised 0.2% in the final quarter of 2025 and exceeding market expectations of 0.4%. This represented the strongest quarterly expansion since the third quarter of 2024.
Meanwhile, Japan’s economy expanded at a rate of 2.1% annualized in Q1, up from a downwardly revised 0.8% growth in the previous quarter and surpassing market forecasts of 1.7%, marking the fastest pace of expansion in six quarters.
Japan's Economy Minister, Minoru Kiuchi, said on Tuesday that the government will respond swiftly while monitoring the economic impact of the Middle East conflict and price hikes on households and businesses.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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