AUD/JPY climbs to mid-92.00s, lacks bullish conviction amid mixed fundamental cues

AUD/JPY gains some positive traction and moves away from a multi-week low set on Thursday.
Hopes for the de-escalation of US-China tensions underpin the AUD and support spot prices.
The divergent RBA-BoJ policy expectations warrant caution before positioning for further gains.

Haresh Menghani FXStreet

The AUD/JPY cross attracts some buying on Friday and for now, seems to have snapped a three-day losing streak to sub-92.00 levels, or a three-week low touched the previous day. The intraday move up lifts spot prices to a fresh daily high, around the 92.50 region during the early European session, and is sponsored by the emergence of some buying around the Australian Dollar (AUD).

US Deputy Secretary of State Christopher Landau spoke with Chinese Executive Vice Foreign Minister Ma Zhaoxu earlier today and discussed a wide range of issues of mutual interest. Both agreed on the importance of keeping open lines of communication, which, along with a broadly weaker, provides a modest lift to the AUD and the AUD/JPY cross. However, a combination of factors warrants some caution for bulls.

China’s Commerce Ministry on Wednesday warned of legal action against individuals or organizations implementing US export restrictions on Huawei's Ascend AI chips. This highlights persistent tensions between the world's two largest economies and should keep a lid on the optimism. Apart from this, the Reserve Bank of Australia's (RBA) dovish outlook contributes to capping the AUD and the AUD/JPY cross.

The Australian central bank, as was widely expected, lowered its benchmark interest rate by 25 basis points (bps) to 3.8% on Tuesday and left the door open for more rate cuts. This marks a big divergence in comparison to hawkish Bank of Japan (BoJ) expectations, which, along with sustained safe-haven buying, is seen underpinning the Japanese Yen (JPY) and might hold back the AUD/JPY bulls from placing fresh bets.

BoJ officials recently showed a willingness to hike interest rates further if the economy and prices improve as projected. Adding to this, Japan's hotter consumer inflation figures released earlier today reaffirmed bets that the BoJ will continue raising interest rates. Hence, it will be prudent to wait for strong follow-through buying before confirming a near-term bottom for the AUD/JPY cross and positioning for further gains.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

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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