AUD/JPY clings to gains near 94.50 as investors doubt BoJ’s rate hike plans
- AUD/JPY trades firmly near 94.50 as investors see BoJ’s rate hike plans deferring to early 2026.
- Japan’s Ishiba warns that higher borrowing costs could dampen government’s spending plans.
- The Australian Dollar fails to capitalize on the positive outcome from US-China trade talks.
The AUD/JPY pair holds onto four-day rally to near 94.50 during Asian trading hours on Wednesday. The cross exhibits strength as investors start doubting over whether the Bank of Japan (BoJ) will raise interest rates again this year.
On Monday, Japan’s Prime Minister Shigeru Ishiba cited concerns over rising interest rates by the BoJ, warning that they could hinder Tokyo’s spending plans. The statement from PM Ishiba came at a time when the economic outlook of Japan has become uncertain due to the fallout of the tariff policy by United States (US) President Donald Trump.
A Reuters poll in the June 2-10 period showed that a slight majority of economists expect the BoJ to keep interest rates steady at 0.5% by the year-end. The survey also showed that none of the economists expected the Japanese central bank to raise its key borrowing rate in the next week’s monetary policy announcement.
On the contrary, BoJ Governor Kazuo Ueda has kept the door open for further tightening the interest rate policy if officials get convinced that the underlying inflation moves around 2%.”
Meanwhile, the Australian Dollar (AUD) exhibits a sluggish performance even though Washington and Beijing have reached a “framework” to execute the trade deal made in Geneva last month. However, the framework is needed to be approved by both United States (US) President Donald Trump and Chinese leader XI Jinping.
A positive outcome from the two-day trade talks between the US and China is favorable for the Aussie Dollar, given that the Australian economy relies heavily on its exports to Beijing.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
