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10.03.2025, 08:08

AUD/JPY remains below 93.50 after trimming recent losses

  • AUD/JPY struggled as the Bank of Japan is widely expected to raise rates further this year.
  • The BoJ’s hawkish stance is reinforced by a 1.8% decline in real cash earnings, reflecting persistent inflation.
  • The AUD found support from stronger-than-expected GDP growth and robust trade data from Australia.

AUD/JPY pares its daily losses, hovering around 93.30 during European trading hours on Monday. The currency cross faced pressure as the Bank of Japan (BoJ) is widely expected to hike rates further this year as part of its monetary policy normalization.

Investor expectations for another BoJ rate hike were reinforced by data released earlier on Monday, showing a 1.8% decline in real cash earnings due to persistent inflation. Additionally, optimism that last year’s substantial wage hikes will continue this year supports the case for further policy tightening. This has driven Japanese government bond (JGB) yields higher, narrowing the rate differential between Japan and other economies, and ultimately benefiting the lower-yielding JPY.

The Australian Dollar (AUD) received support from stronger-than-expected GDP growth and trade data from Australia released last week. On the monetary policy front, the latest Reserve Bank of Australia (RBA) Meeting Minutes indicated caution regarding further interest rate cuts, clarifying that February’s rate reduction does not signal a commitment to continued easing.

The AUD/JPY cross may face challenges as rising global trade tensions dampened investors’ risk appetite. China's retaliatory tariffs on certain US agricultural products went into effect on Monday, in response to last week's US tariff increase from 10% to 20% on Chinese imports, given China’s role as Australia’s largest trading partner.

Moreover, China announced on Saturday that it will impose a 100% tariff on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork from Canada. he move comes as retaliation against tariffs introduced by Canada in October, escalating trade tensions. This marks a new front in a broader trade conflict largely driven by US President Donald Trump's tariff policies.

Tariffs FAQs

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

 

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