AUD/JPY drops to near 101.50 as Aussie struggles due to fears over Trump tariffs on China
08.11.2024, 06:57

AUD/JPY drops to near 101.50 as Aussie struggles due to fears over Trump tariffs on China

  • AUD/JPY depreciates due to fears over Trump’s tariffs on Chinese goods.
  • The Aussie Dollar may regain its ground due to the hawkish mood surrounding the RBA.
  • Japan’s Finance Minister Katsunobu Kato said to closely monitor the impact of Trump’s policies on Japan's economy.

AUD/JPY retraces its recent gains from the previous session, trading around 101.60 during the early European hours on Friday. The Australian Dollar (AUD) lost ground due to concerns about Donald Trump’s proposals to raise tariffs on Chinese goods, given that Australia is one of the largest exporters to China.

However, the downside of the Aussie Dollar could be limited due to hawkish sentiment surrounding the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock emphasized the need for restrictive monetary policy given persistent inflation risks and a strong labor market on Tuesday following the central bank’s decision to hold the Official Cash Rate (OCR) steady at 4.35%, marking its eighth consecutive pause.

The downside of the AUD/JPY cross could be attributed to some verbal intervention from Japanese authorities. Japan’s Finance Minister Katsunobu Kato stated on Friday that he will "closely monitor the impact of Trump’s policies on Japan's economy." Kato emphasized the importance of currencies moving in a stable manner that reflects economic fundamentals and affirmed that appropriate measures would be taken in response to excessive fluctuations.

Japan's real wages and household spending both declined for the second consecutive month in September, which could dampen inflation expectations and delay the Bank of Japan's (BoJ) plans for a rate hike. Combined with Japan's political landscape and prevailing risk-on sentiment, this is likely to limit gains for the safe-haven Yen.

Japanese Yen FAQs

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.

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.

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.

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.

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