AUD/JPY steadily climbs back closer to 93.00 mark amid a broadly weaker JPY

AUD/JPY regains positive traction, though it remains confined in a familiar range.
The Aussie bulls reacted little to China’s Services PMI, which rose to 51.1 in May.
The divergent BoJ-RBA policy outlooks should contribute to capping spot prices.

Haresh Menghani FXStreet

The AUD/JPY cross attracts fresh buyers during the Asian session on Thursday and for now, seems to have stalled the previous day's retracement slide from the 93.60 area, or the weekly high. Spot prices move little following the release of Chinese data and currently trade around the 92.85-92.90 region, up 0.20% for the day.

In fact, a private survey showed that China's services activity expanded at a slightly faster pace in May, with the Caixin Services Purchasing Managers' Index (PMI) inching higher to 51.1 from 50.7 in April. The data matched consensus estimates and failed to provide any meaningful impetus to the China-proxy Australian Dollar (AUD). However, hopes for potential talks between US President Donald Trump and Chinese President Xi Jinping continue to act as a tailwind for the Aussie, lending some support to the AUD/JPY cross.

Meanwhile, a modest US Dollar (USD) uptick exerts some downward pressure on the Japanese Yen (JPY), which contributes to the intraday move higher. However, the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates holds back the JPY bears from placing aggressive bets. The bets were reaffirmed by data showing that Japan's real wages fell for the fourth consecutive month in April amid stubborn inflation. This, along with geopolitical risks, should limit JPY losses and cap the AUD/JPY cross.

Apart from this, the Reserve Bank of Australia's (RBA) dovish tilt should contribute to keeping a lid on the AUD. Even from a technical perspective, the recent range-bound price action witnessed over the past two weeks or so warrants some caution before positioning for the next leg of a directional move. Hence, a sustained move and a daily close above the 93.00 round figure is needed to back the case for any further near-term appreciating move amid persistent trade-related uncertainties and US-China trade war fears.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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