AUD/JPY remains depressed near mid-104.00s, below YTD top as JPY benefits from hawkish BoJ
- AUD/JPY edges lower on Wednesday as hawkish BoJ minutes boost the JPY.
- Geopolitical risks further benefit the safe-haven JPY and weigh on spot prices.
- February RBA rate hike bets underpin the AUD bulls and support the cross.
The AUD/JPY cross attracts some sellers on Wednesday and sticks to modest intraday losses, around mid-104.00s during the first half of the European session. Spot prices, however, lack follow-through and remain close to the highest level since July 2024, touched the previous day.
The Japanese Yen (JPY) gets a minor lift following the release of the Bank of Japan's (BoJ) October policy meeting Minutes, which showed a broad agreement that the central bank should continue raising rates if economic price forecasts materialize. At the subsequent meeting in December, the BoJ raised the policy rate to 0.75%, or a 30-year high, and left the door open to further tightening. This, along with persistent geopolitical uncertainties, benefits the JPY's safe-haven status and exerts some pressure on the AUD/JPY cross.
Meanwhile, the Reserve Bank of Australia’s (RBA) December meeting Minutes released on Tuesday indicated that the board is becoming less confident that monetary policy remains sufficiently restrictive. Moreover, the central bank warned that the next move could be up if inflation pressures prove to be stubborn. In fact, Australia’s headline inflation rose to 3.8% in October 2025 from 3.6% previous, lifting bets for a rate hike in February 2026. This underpins the Australian Dollar (AUD) and supports the AUD/JPY cross.
The fundamental backdrop suggests that any meaningful corrective decline is more likely to be bought into and remain limited amid the year-end thin liquidity. Hence, it will be prudent to wait for strong follow-through selling before confirming that the AUD/JPY cross has topped out and positioning for deeper losses. Traders now look to BoJ Governor Kazuo Ueda's speech on Thursday, which, along with Friday's release of Tokyo CPI, will play a key role in influencing the JPY price dynamics and provide a fresh impetus to the AUD/JPY cross.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.