- AUD/JPY regains positive on Wednesday amid the emergence of some JPY selling.
- The RBA’s hawkish stance and the BoJ rate-hike uncertainty remain supportive.
- Geopolitical risks and a softer risk tone might keep a lid on any meaningful gains.
The AUD/JPY cross attracts some dip-buying during the Asian session on Wednesday and for now, seems to have stalled the previous day's rejection slide from the 99.00 mark, or a nearly three-week top. Spot prices, however, remain confined in a narrow band held over the past week or so and currently trade around the 98.20 area, up just over 0.20% for the day.
The Australian Dollar (AUD) continues to draw support from the Reserve Bank of Australia's (RBA) hawkish stance, showing readiness to hike interest rates in the face of more upside risks to inflation. This, along with increasing chatters regarding big economic stimulus measures from China's government, turns out to be another factor underpinning the China-proxy Aussie. Apart from this, the emergence of some selling around the Japanese Yen (JPY) assists the AUD/JPY cross to regain some positive traction.
Meanwhile, the political uncertainty led by Japanese Prime Minister Fumio Kishida's decision to step down could lead to a pause in the Bank of Japan's (BoJ) plan to raise interest rates steadily, which, in turn, is seen weighing on the JPY. Adding to this, government data released this Wednesday showed that Japan's trade deficit ballooned to ¥621.84 billion in July amid a smaller-than-expected, 10.3% increase in exports and a 16.6% jump in exports, pushed up by a weaker yen rather than a robust increase in volume.
Investors, however, seem convinced that an improving macroeconomic environment in Japan should encourage the BoJ to raise interest rates again later this year. This, along with persistent geopolitical risks and a slight deterioration in the global risk sentiment, should help limit any meaningful JPY downfall and keep a lid on the AUD/JPY cross. This makes it prudent to wait for a convincing breakout through the short-term range before positioning for an extension of the recovery from over a one-year low touched this August.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has embarked in an ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds.
The Bank’s massive stimulus has caused the Yen to depreciate against its main currency peers. This process has exacerbated more recently due to an increasing policy divergence between the Bank of Japan and other main central banks, which have opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy of holding down rates has led to a widening differential with other currencies, dragging down the value of the Yen.
A weaker Yen and the spike in global energy prices have led to an increase in Japanese inflation, which has exceeded the BoJ’s 2% target. With wage inflation becoming a cause of concern, the BoJ looks to move away from ultra loose policy, while trying to avoid slowing the activity too much.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD drops toward 1.1100, as USD recovers ahead of Fed Minutes
EUR/USD is on a slippering slope toward 1.1100, snapping a three-day winning streak in the European session on Wednesday. The pair is weighed down by resurgent US Dollar demand, as markets turn cautious ahead of the annual US NFP revisions and the Fed Minutes.
GBP/USD retreats toward 1.3000 on renewed US Dollar demand
GBP/USD is pulling back toward 1.3000 in European trading on Wednesday, having hit yearly highs at 1.3052 on Tuesday. The US Dollar finds fresh demand amid a tepid risk tone, as traders await the US NFP revisions and the Fed Minutes for fresh cues on the policy path.
Gold remains poised to test $2,550, with eyes on Fed Minutes
Gold price is on the front foot above $2,510 in Wednesday’s Asian trading, consolidating the previous upsurge to a new all-time high of $2,532. Gold traders take account of broad risk-aversion and refrain from placing fresh bets ahead of the Minutes of the Fed July meeting due later on Wednesday.
Bitcoin price consolidates in $57,000 to $62,000 band
Bitcoin and Ethereum prices are expected to drop after struggling to break through critical resistance levels, and momentum indicators show bearish biases. In contrast, Ripple is showing stability near its daily support level of $0.544, suggesting a possible rebound.
US Dollar extends losses, Gold shines
The dollar’s misery is making gold shine like a new penny. The precious metal advanced to a fresh record yesterday backed by the rising expectation of Fed cuts and the lower US yields.