AUD/JPY bounces off daily low, trades with mild negative bias around 91.00 mark

AUD/JPY drifts lower on Thursday amid reviving demand for the safe-haven JPY.
Hopes for a US-Japan trade deal and BoJ rate hike bets further underpin the JPY.
A positive risk tone lends support to the Aussie and helps limit losses for the pair.

Haresh Menghani FXStreet

The AUD/JPY cross struggles to capitalize on the previous day's strong move up to the 91.60 area or a nearly three-week high, and attracts some sellers on Thursday. Spot prices, however, trim a part of modest intraday losses and trade around the 91.00 mark during the first half of the European session, down 0.30% for the day.

The latest optimism over a quick resolution to the US-China trade standoff faded rather quickly after US Treasury Secretary Scott Bessent's remarks on Wednesday, which, in turn, drives some safe-haven flows towards the Japanese Yen (JPY). Apart from this, hopes for a US-Japan trade deal and the growing acceptance that the Bank of Japan (BoJ) will hike interest rates further in 2025 underpin the JPY. This, in turn, is seen as a key factor acting as a headwind for the AUD/JPY cross.

Meanwhile, traders have been pricing in the possibility of another 25 basis points (bps) interest rate cut by the Reserve Bank of Australia (RBA) in May. This marks a big divergence in comparison to hawkish BoJ expectations, which further contributes to the Australian Dollar's (AUD) relative underperformance and weighs on the AUD/JPY cross. That said, a generally positive tone around the equity markets caps the JPY and lends support to the perceived riskier Aussie.

US President Donald Trump backed off from threats to fire Federal Reserve (Fed) Chair Jerome Powell following the intense criticism for not cutting interest rates. Adding to this signs of easing trade tensions between the US and China – the world's two largest economies – remain supportive of the upbeat market mood. This is holding back the JPY bulls from placing aggressive bets and acting as a tailwind for the AUD/JPY cross, warranting some caution for bearish traders.

US-China Trade War FAQs

What does “trade war” mean?

Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.

What is the US-China trade war?

An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.

Trade war 2.0

The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.

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Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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