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AUD/JPY holds losses near 95.00 following hawkish BoJ Meeting Minutes

  • AUD/JPY weakens as the Japanese Yen receives support from hawkish BoJ meeting minutes.
  • Minutes from the BoJ’s January policy meeting suggested that most members viewed the 2% inflation target as increasingly attainable.
  • The Australian Dollar remains supported as investors expect the RBA to keep interest rates unchanged in April.

AUD/JPY trades around 94.70 during early European hours on Tuesday, holding modest intraday losses after gaining over 1% in the previous session. The decline is attributed to a stronger Japanese Yen (JPY) following hawkish Bank of Japan (BoJ) Meeting Minutes, which suggested discussions on conditions for further interest rate hikes.

Minutes from the BoJ’s January policy meeting indicated that most members saw an increasing likelihood of achieving the 2% inflation target. Additionally, policymakers debated the pace at which rates should be raised further. BoJ Governor Kazuo Ueda reiterated in parliament on Monday that the central bank's goal is to ensure stable prices and that it will adjust monetary easing accordingly if the inflation target is within reach.

Despite the current dip, the risk-sensitive AUD/JPY cross may find support from positive market sentiment, fueled by expectations of less severe US trade tariffs, progress on a Russia-Ukraine peace deal, and China’s economic stimulus measures.

The Financial Times reported that China is considering expanding a multibillion-dollar subsidy program to include services, aiming to boost consumption. This move could lift investor confidence and shift flows away from the safe-haven JPY while supporting the Australian Dollar (AUD), given the strong trade ties between Australia and China.

Additionally, Russian state media RIA Novosti reports that the US and Russia are set to release a joint statement on Tuesday following talks in Riyadh, which covered efforts to negotiate a Black Sea maritime ceasefire, among other topics.

Meanwhile, the AUD remains supported as investors anticipate the Reserve Bank of Australia (RBA) keeping interest rates steady in April. This follows its first rate cut in four years in February when the RBA signaled a more cautious stance than markets had expected. The central bank is closely monitoring US policy decisions and their potential impact on Australia’s inflation outlook.

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.

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