- AUD/JPY loses ground as the Australian Dollar declines after the release of the RBA Meeting Minutes.
- RBA Assistant Governor Sarah Hunter noted that increased tariff uncertainty could negatively impact investment, output, and employment in Australia.
- BoJ Governor Kazuo Ueda signaled that interest rates may rise if economic and price data move as expected.
AUD/JPY depreciated by approximately 0.50%, trading around 92.20 during the European hours on Tuesday. The currency cross loses ground as the Australian Dollar (AUD) falls following the release of the Reserve Bank of Australia’s (RBA) Meeting Minutes.
RBA Minutes of its May monetary policy meeting indicated that the board viewed the case for a 25 basis point cut as a stronger one, preferring a policy to be cautious and predictable. The board members emphasized that US trade policy posed a significant and adverse impact on the global outlook, but had not yet affected the Australian economy, however, they did not reason that a 50 bps was needed.
Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter warned on Tuesday that “higher US tariffs will put a drag on the global economy.” Hunter also noted that higher uncertainty could dampen investment, output, and employment in Australia. However, she added that Australia’s exporters are relatively well-placed to weather the storm and assumes that Chinese authorities will support their economy through fiscal stimulus.
The downside of the AUD/JPY cross could be restrained as the Japanese Yen (JPY) remains softer. However, the JPY may regain its ground amid growing odds of the Bank of Japan’s (BoJ) rate hikes. The BoJ Governor Kazuo Ueda expressed willingness to increase interest rates if economic and price data move in line with forecasts.
Ueda also highlighted the importance that Japan's economy is undergoing a moderate recovery despite some weakness. He noted that corporate profits are improving, with business sentiment solid. “Will review bond taper plans at the next policy meeting, taking into account opinions of bond market participants.”
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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