AUD/JPY holds gains to near 112.50 after BoJ keeps rates steady as expected

AUD/JPY trades in positive territory around 112.45 in Thursday’s Asian session.
BoJ kept the policy rate unchanged at 0.75% at its March policy meeting on Thursday.
Australia’s Unemployment Rate rose to 4.3% in February, weaker than expected.

Lallalit Srijandorn FXStreet

The AUD/JPY cross holds gains near 112.45 during the Asian trading hours on Thursday. The Japanese Yen (JPY) softens against the Australian Dollar (AUD) after the Bank of Japan (BoJ) interest rate decision. Traders will closely monitor Governor Kazuo Ueda's press conference for any hints about the next move.

As widely expected, the BoJ decided to hold the short-term interest rate steady at 0.75% after concluding its two-day monetary policy review meeting on Thursday. According to the BoJ’s policy statement, the central bank will continue to raise the policy rate if the economy and prices move in line with its forecast, in accordance with improvements in the economy and prices. The board member noted that the central bank must be vigilant to the impact rising crude oil prices could have on underlying inflation.

The attention will shift to the BoJ’s Governor Kazuo Ueda press conference for more clues about the interest rate path in Japan. Any hawkish comments from policymakers could lift the JPY and act as a headwind for the cross.

The weaker Australia’s employment data cooled expectations for interest rate hikes from the Reserve Bank of Australia (RBA), which could weigh on the Aussie. Data released by the Australian Bureau of Statistics (ABS) on Thursday showed that the Unemployment Rate rose to 4.3% in February from 4.1% in January. The figure came in above the market consensus of 4.1%. Money markets lowered the probability of a May 2026 rate hike from 61% down to 57% following the jobs data.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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