AUD/JPY rises to near 94.50 as Trump considers 35% tariffs on Japan
- AUD/JPY appreciates as the Japanese Yen weakens amid uncertainty, with Trump considering additional tariffs of 30% or 35% on Japan.
- The Japanese Yen also faces challenges due to the BoJ’s caution over interest rate hikes.
- Australia’s Retail Sales rose by 0.2% MoM in May, against the expected 0.4% increase.
AUD/JPY retraces its recent losses registered in the previous session, trading around 94.50 during the Asian hours on Wednesday. The currency cross appreciates as the Japanese Yen (JPY) faces challenges following the recent comments from the US President Donald Trump.
President Trump hit the newswires on Tuesday, saying that he is considering adding additional 30% or 35% tariffs on Japan and not extending the self-imposed July 9 deadline on the currently-suspended reciprocal tariffs. Trump expressed his doubt on reaching a deal with Japan.
Additionally, the Bank of Japan (BoJ) adopt caution on unwinding its ultra-loose policy forced investors to delay their expectations for early interest rate hikes. The BoJ new board member Kazuyuki Masu emphasized on Tuesday that the central bank should not rush into raising interest rates given various economic risks.
Bank of Japan Governor Kazuo Ueda also noted that any future rate hikes will depend on the overall inflation dynamic, including wage growth and expectations. Ueda highlighted the headline inflation has been above 2% for nearly three years, underlying inflation remains below target.
However, the upside of the AUD/JPY cross could be restrained as the Australian Dollar (AUD) against its peers following the release of weaker-than-expected domestic economic data. The Australian Bureau of Statistics (ABS) showed that Retail Sales rose 0.2% month-over-month in May, compared to a flat 0% in April (revised from -0.1%). The reading came in below the market expectations of 0.4%. Meanwhile, Building Permits rose by 3.2% in May, as compared to the previous decline of 4.1%, but falling short of expected 4.8% increase.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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