- The AUD/JPY pair is pulling back from a near two-month peak established on Tuesday, driven by a resurgence in Japanese Yen strength.
- Market expectations of another interest rate increase by the Bank of Japan in 2025 are providing sustained support for the JPY.
- Positive trade sentiment and diminished expectations for aggressive rate cuts by the Reserve Bank of Australia may cushion potential losses for the currency cross.
The AUD/JPY cross is experiencing selling pressure during Wednesday’s Asian trading session, appearing to interrupt a two-day upward trend that had reached the 95.65 level, its highest point in almost two months, the previous day. The pair is currently trading around the 95.15 mark, reflecting a decline of approximately 0.30% for the session, influenced by a widespread strengthening of the Japanese Yen (JPY).
Bank of Japan (BoJ) Deputy Governor Shinichi Uchida reaffirmed on Tuesday the central bank’s commitment to continuing its path of interest rate increases, contingent upon the projected improvements in the Japanese economy and price levels. This statement, coupled with growing concerns about broader and more persistent inflationary pressures within Japan, reinforces the rationale for further policy normalization by the BoJ. The BoJ’s stance is acting as a tailwind for the JPY, consequently placing downward pressure on the AUD/JPY exchange rate. Market participants are closely watching upcoming inflation data and BoJ communications for further clues about the timing and magnitude of future rate hikes. The central bank’s commitment to data-dependent decision-making adds an element of uncertainty, keeping traders on their toes.
Conversely, the Australian Dollar (AUD) is finding support from a higher-than-anticipated domestic Wage Price Index, which suggests a degree of resilience in the Australian economy. Furthermore, the easing of tensions in the US-China trade relationship is dampening expectations for more aggressive monetary easing by the Reserve Bank of Australia (RBA). The RBA, at its recent meeting, held rates steady at 4.35%, but acknowledged that inflation remains above the target range of 2-3%. In addition to these factors, a weakening US Dollar (USD) is providing a boost to the AUD, discouraging traders from adopting overly bearish positions on the AUD/JPY cross. Market analysts suggest that the AUD/JPY pair’s near-term trajectory will likely be determined by the interplay between global risk sentiment, commodity price movements, and relative monetary policy stances of the BoJ and RBA.
