AUD/JPY retraces its gains on improved Japan Machinery Orders, trades around 98.10

AUD/JPY snaps its three-day winning streak, trading lower around 98.10 during the European trading hours on Monday. The Japanese Yen (JPY) gains ground against the Australian Dollar (AUD) on the back of improved Machinery Orders data from Japan, which in turn, undermines the AUD/JPY pair. Moreover, Japanese Finance Minister Shunichi Suzuki reiterated that “The Bank of Japan (BoJ) holds jurisdiction over monetary policy. But there will be a phase when interest rates go up”.

Japan’s Machinery Orders (MoM) increased by 2.7%, surpassing expectations of 2.5% in January, rebounding from the previous decline of 4.9%. Meanwhile, the year-over-year data showed a decline with an improved reading of -0.7%, better than the anticipated -1.4% reading and the prior decline of -5.0%. These numbers indicate a boost in business confidence within Japan’s manufacturing sector.

On the other side, the Australian Dollar likely received support from the higher S&P/ASX 200 index on Monday, which reached an all-time high, driven by increased mining stocks amid stronger metals prices. This positive market sentiment could further strengthen the Aussie Dollar, consequently bolstering the AUD/JPY cross, as investors believe that the Reserve Bank of Australia (RBA) will maintain its current monetary policy stance throughout 2024.

Westpac expects a resilient Australian economy, supported by low unemployment and healthy corporate sector balance sheets. However, Westpac anticipates the RBA to adopt a less restrictive approach in 2025.

Reserve Bank of Australia Governor Michele Bullock addressed the Australian parliament's Senate Economics Legislation Committee in the last week, acknowledging that the global economy has performed better than initially anticipated. She highlighted previous concerns about potential hard landings and recessions but indicated that the economy is currently in a favorable position to bring inflation down within a reasonable timeframe.