The AUD/JPY cross is currently trading with modest losses just above the 95.00 mark, retreating from a nearly two-month high reached earlier this week. As of Wednesday, the pair was hovering around 95.15, marking a 0.30% decline for the day.
This price action follows a stronger Japanese Yen (JPY), largely driven by ongoing speculation about future rate hikes by the Bank of Japan (BoJ) in 2025. The brokers at Vestronmix provide a comprehensive analysis of this topic in their article.
BoJ’s Stance on Interest Rates Supports JPY
A key factor weighing on the AUD/JPY cross is the strength of the Japanese Yen. On Tuesday, Shinichi Uchida, Deputy Governor of the BoJ, reiterated the central bank’s commitment to tightening monetary policy if the economy and inflation continue to improve as projected. This statement signals that the BoJ is poised to further normalize its policy stance, which has supported the JPY in recent sessions.
Uchida’s comments underscore the BoJ’s proactive approach toward raising interest rates in response to potential entrenched price increases in Japan. These expectations for monetary tightening have provided a tailwind for the JPY, exerting downward pressure on the AUD/JPY cross. Investors are increasingly betting on the BoJ’s capacity to raise rates, and the accompanying JPY strength has led to the current retracement in AUD/JPY prices.
Australian Economic Data and Trade Optimism
On the other hand, the Australian Dollar (AUD) has not been without its fundamental support. Domestic economic data continues to provide a relatively optimistic outlook for Australia.
Notably, the latest Wage Price Index (WPI) came in hotter-than-expected, suggesting that the Australian economy remains resilient. These data points to continued inflationary pressures in the domestic economy, which may keep rate cut expectations for the Reserve Bank of Australia (RBA) in check.
Additionally, improved trade relations between the United States and China have helped reduce the risk of a prolonged trade war, thus mitigating downside risks for the Australian economy. These developments contribute to the limited losses for the AUD/JPY cross, despite the JPY’s overall strength. The reduced bets for aggressive RBA rate cuts provide a supportive backdrop for the AUD, preventing the cross from falling too dramatically.
Mixed Fundamental Drivers for AUD/JPY
The AUD/JPY cross is currently caught between two opposing forces. On one hand, the BoJ’s hawkish rhetoric is bullish for the JPY, driving the cross lower.
On the other hand, the Australian Dollar is supported by strong domestic economic fundamentals and reduced fears of significant interest rate cuts by the RBA. These conflicting drivers are likely to result in a choppy trading environment for the pair in the short term.
In this context, the AUD/JPY cross could find some support at lower levels, especially if dip-buying activity emerges from traders looking to capitalize on any pullbacks. For now, the pair appears to have snapped its two-day winning streak, retreating from the 95.65 area, a nearly two-month high set on Tuesday.
AUD/JPY: Modest Losses as JPY Strength Continues Above 95.00
The AUD/JPY cross has dipped slightly, trading above 95.00, after reaching a two-month high earlier this week. The Japanese Yen (JPY) remains strong, bolstered by expectations of BoJ rate hikes in 2025, while the Australian Dollar (AUD) benefits from strong domestic data and reduced fears of aggressive RBA rate cuts.
The JPY strength pressures the pair, but support from the Wage Price Index and trade optimism could limit further losses. Traders now await Australia’s employment report for fresh impetus to drive the cross.
Focus on Upcoming Economic Data
The outlook for the AUD/JPY cross will depend largely on upcoming economic data releases, particularly from Australia. The monthly employment report scheduled for Thursday during the Asian session will be closely watched by traders. A strong print in this report could provide fresh impetus for the AUD, potentially leading to a rebound in the AUD/JPY cross and a resumption of the uptrend.
Given the mixed fundamentals, the near-term price action of AUD/JPY will likely remain volatile as investors digest the interplay between BoJ policy and Australian economic conditions. As it stands, the 95.00 region appears to be a key level of support, with traders eyeing further developments from both the Japanese and Australian economies.
Conclusion
In summary, the AUD/JPY pair is trading with modest losses as it retreats from the 95.65 high reached on Tuesday. The Japanese Yen’s strength is primarily attributed to growing expectations that the BoJ will continue to raise interest rates in 2025. Meanwhile, the Australian Dollar draws support from a stronger-than-expected Wage Price Index and reduced concerns over aggressive RBA rate cuts.
As the cross remains close to its two-month high, traders will need to watch for key economic data from Australia, particularly the employment report, to determine the next directional move for the AUD/JPY cross.
