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AUD/JPY remains steady around 97.00 despite rising hawkish tone surrounding BoJ outlook

  • AUD/JPY holds ground as Australia’s Consumer Inflation Expectations rose to 4.6% in February from 4.0% prior.
  • Market caution increased as the White House indicated that President Trump could unveil his reciprocal tariff plan on Thursday.
  • Japan's PPI rose 4.2% YoY in January, marking the highest reading since May 2023.

AUD/JPY remains steady after registering gains in the previous three sessions, trading around 97.00 during Asian hours on Thursday. The Australian Dollar (AUD) strengthened against its counterparts following an increase in Australia’s Consumer Inflation Expectations, which rose to 4.6% in February from January’s 4.0%

However, the upside for the AUD/JPY cross may be capped due to mounting concerns over a potential global trade war. Late Wednesday, the White House indicated that US President Donald Trump could unveil his reciprocal tariff plan before meeting Indian Prime Minister Narendra Modi on Thursday, according to CNBC. Trump has recently signaled his intention to impose tariffs on all nations that levy import duties on the United States (US).

Additionally, the Japanese Yen (JPY) gains support following the release of stronger-than-expected Producer Price Index (PPI) data from Japan, reinforcing expectations of further rate hikes by the Bank of Japan (BoJ).

Japan's PPI rose 4.2% year-over-year in January 2025, accelerating from an upwardly revised 3.9% in the previous month and surpassing market expectations of 4.0%. This marks the 47th consecutive month of producer inflation and the highest reading since May 2023. On a monthly basis, producer prices increased by 0.3%, aligning with estimates but easing slightly from December’s 0.4% growth. The data highlights expanding inflationary pressures in Japan, further supported by recent wage growth figures, strengthening the case for additional BoJ rate hikes.

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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