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AUD/JPY retraces to near 109.00 as Yen rebounds, outlook remains upbeat

  • AUD/JPY corrects to near 109.20 as the Japanese Yen gains temporary ground.
  • Takaichi’s big spending budget woes continue to remain a drag on the Yen.
  • Australia’s Trade Surplus widens to 3,373 million in December.

The AUD/JPY pair is down to 0.4% to near 109.20 during the early European trading session on Thursday. The cross retraces from its lifetime high of 110.1 posted on Wednesday as the Japanese Yen (JPY) gains temporary ground after a three-day fall.

The outlook of the JPY seems uncertain on hopes that Japan’s Prime Minister (PM) Sanae Takaichi party will gain significant seats in parliament’s lower house election on February 8. Takaichi’s victory at lower house elections will allow her to pass various bills without much difficulties, a scenario that increases the odds of passing a big spending budget to boost economic growth.

Loosening fiscal conditions would be an unfavorable situation for the domestic currency, and will also increase yields on government bonds.

Meanwhile, the Australian Dollar (AUD) has corrected slightly after ranging higher, following the monetary policy announcement by the Reserve Bank of Australia (RBA) on Tuesday. In the policy meeting, the RBA raised its Official Cash Rate (OCR) by 25 basis points (bps) to 3.85%, and guided that more hikes could be announced, citing inflation risks.

Australian Dollar Price This week

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD0.53%0.63%1.27%0.61%-0.22%0.49%0.84%
EUR-0.53%0.05%0.76%0.07%-0.75%-0.04%0.30%
GBP-0.63%-0.05%0.60%0.02%-0.80%-0.10%0.25%
JPY-1.27%-0.76%-0.60%-0.65%-1.49%-0.73%-0.69%
CAD-0.61%-0.07%-0.02%0.65%-0.79%-0.10%0.22%
AUD0.22%0.75%0.80%1.49%0.79%0.72%1.06%
NZD-0.49%0.04%0.10%0.73%0.10%-0.72%0.34%
CHF-0.84%-0.30%-0.25%0.69%-0.22%-1.06%-0.34%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

“Inflation pulse is too strong, and we cannot allow inflation to get away from us again,” RBA Governor Michele Bullock said.

During the day, Australian Bureau of Statistics reported stronger-than-projected Trade Balance data for December. Trade Surplus came in at 3,373 million (M), higher than estimates of 3,300M, and the prior release of 2,597M.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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