|

AUD/JPY falls below 93.00, downside seems limited as Japan considers debt issuance changes

  • AUD/JPY edges lower as the Japanese Yen recovers its losses due to hawkish tone surrounding the BoJ’s rate outlook.
  • The JPY may lose ground as Japan may tweak in government debt issuance.
  • National Australia Bank expects that the RBA may adopt a less dovish stance in future policy meetings.

AUD/JPY halts its three-day winning streak, trading around 92.90 during the European hours on Wednesday. The currency cross depreciates as the Japanese Yen (JPY) gains ground, possibly driven by the expectations that the Bank of Japan (BoJ) will continue raising interest rates amid the broadening inflation in Japan.

However, the AUD/JPY may regain its ground as the Japanese Yen may struggle again as Japan signaled potential cuts in government debt issuance. On Monday, Japan's Ministry of Finance asked for feedback from market participants on bond issuance and the current market situation, according to Bloomberg.

On Tuesday, Reuters reported that Japan's Ministry of Finance will consider reducing its super-long bond issuance to adjust the composition of its bond program for the current fiscal year. On Wednesday, Japan’s Finance Minister Shunichi Kato said that the government is concerned about the recent spike in yields and will closely monitor bond market situations.

The AUD/JPY cross also faced challenges as the Australian Dollar (AUD) struggled despite a higher-than-expected Monthly Consumer Price Index (CPI) release on Wednesday. The Australian Bureau of Statistics reported that monthly inflation, in the price of a fixed basket of goods and services acquired by household consumers, remained steady at a 2.4% increase year-over-year in April, higher than the expected 2.3% rise.

National Australia Bank (NAB) anticipates that the Reserve Bank of Australia (RBA) may adopt a less dovish stance and expects the central bank to return the cash rate to a neutral stance over the coming months. However, the NAB has lifted terminal rate expectation to 3.1% from the previous 2.6%.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

More from Akhtar Faruqui
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave. This political shift in the US has triggered sharp price swings across the cryptocurrency market.

Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.