Australian Dollar strengthens against Japanese Yen on hawkish RBA path

AUD/JPY trades with mild gains around 113.60 in Monday’s early European session.
Market pricing indicates the OCR could reach 4.7% by the end of 2026, with no cuts expected until 2028.
Japan’s officials intervened in the FX market during the holidays in early May.

Lallalit Srijandorn FXStreet

The AUD/JPY cross posts modest gains near 113.60 during the early European trading hours on Monday. The Australian Dollar (AUD) edges higher against the Japanese Yen (JPY) on a hawkish tone from the Reserve Bank of Australia (RBA). Nonetheless, traders remain cautious of potential further interventions from the Japanese authorities.

The Australian central bank raised its Official Cash Rate (OCR) to 4.35% last week, matching its December 2024 peak, as inflation remains elevated. This marks the third consecutive rate hike this year. According to the statement, the RBA said inflation had picked up materially in the second half of 2025, with conflict in the Middle East pushing up fuel and commodity prices.

The RBA signaled that more rate hikes were on the horizon, with its economic forecasts pencilling in a 4.70% policy rate by the end of 2026, with no cuts expected until 2028, according to CNBC.

However, the potential upside for the cross might be limited amid intervention fears. Japanese officials reportedly intervened in the currency market again during the Golden week.

Markets estimated the cost of these additional moves at approximately ¥4 trillion to ¥5 trillion ($32 billion). Japan’s top foreign exchange official, Atsushi Mimura, said last week that continued intervention was possible.

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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