The AUD/JPY pair remains in positive territory, trading around 104.90 during Asian hours on Monday. The currency pair remains stronger as the Japanese yen faces pressure amid financial concerns over Prime Minister Sanae Takaishi’s wide-ranging spending plans to stimulate growth. Traders are also watching potential currency intervention, with business leaders urging the government to address the weak yen.
Bank of Japan (BoJ) Governor Kazuo Ueda stressed that the central bank will continue to raise interest rates if economic and price forecasts are met. Ueda said adjusting the degree of monetary support will help achieve sustainable growth and expects the Japanese economy to maintain a cycle of moderate increases in wages and prices.
The upside of the risk-sensitive AUD/JPY pair could be capped amid safe-haven demand, driven by a renewed rise in geopolitical risks following the US arrest of Venezuelan President Nicolas Maduro.
China’s RatingDog on Monday released its services Purchasing Managers’ Index (PMI), which fell to 52.0 in December from 52.1 in November. It is important to note that any change in the Chinese economy may affect the Australian dollar, as China and Australia are close trading partners.
The Australian dollar may find support with increasing expectations of an interest rate hike by the Reserve Bank of Australia (RBA). Traders are awaiting the Australian Q4 CPI report on January 28, with analysts saying a stronger-than-expected core inflation reading could lead to a rate hike at the Reserve Bank of Australia’s meeting on February 3.
Frequently asked questions about the Japanese Yen
The Japanese Yen (JPY) is one of the most widely traded currencies in the world. Their value is determined broadly by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the spread between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the powers of the Bank of Japan is to control the currency, so its movements are key to the yen. The Bank of Japan has intervened directly in currency markets on occasion, generally to devalue the yen, although it often refrains from doing so due to the political concerns of its major trading partners. The Bank of Japan’s ultra-loose monetary policy between 2013 and 2024 caused the yen to depreciate against its major counterparts due to the growing policy divergence between the Bank of Japan and other major central banks. More recently, the gradual dismantling of this ultra-lenient policy has given the yen some support.
Over the past decade, the Bank of Japan’s ultra-loose monetary policy stance has led to widening policy divergence with other central banks, especially the US Federal Reserve. This supported the widening of the spread between the US and Japanese 10-year bonds, which favored the US dollar against the Japanese yen. The Bank of Japan’s decision in 2024 to gradually abandon ultra-loose policy, along with interest rate cuts at other major central banks, are narrowing this spread.
The Japanese yen is often viewed as a safe investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency because of its supposed reliability and stability. Turbulent times are likely to strengthen the value of the yen against other currencies that are considered riskier to invest in.
