Key Moments
- AUD/JPY trades near 114.15 in early European trading on Monday. It stays above 114.00.
- Meanwhile, reports of an Iranian plan to reopen the Strait of Hormuz improve risk sentiment. This supports the Australian Dollar.
- In addition, traders watch the Bank of Japan rate decision and Australia’s March CPI later this week.
Risk-On Mood Lifts AUD/JPY Above 114.00
AUD/JPY trades near 114.15 in early European trading on Monday. The pair holds above the 114.00 level.
Risk sentiment improved. Reports say Iran proposed reopening the Strait of Hormuz. It also proposed extending the ceasefire. As a result, risk demand increased. The Australian Dollar gained against the Japanese Yen.
The proposal aims to extend the ceasefire. This gives both sides more time for negotiations. According to reports, the White House received the plan through Pakistani mediators. However, the United States has not confirmed its response.
Upcoming Australian CPI Could Shape RBA Expectations
Markets now focus on Australia’s March CPI report. The data releases on Wednesday.
Economists expect CPI to rise 4.7% year-on-year. That compares with 3.7% in February. Therefore, inflation may rise again.
A stronger reading could lift expectations for a 25-basis-point rate hike. The Reserve Bank of Australia meets on May 5. As a result, the Australian Dollar could strengthen against the Japanese Yen.
| Event | Details |
|---|---|
| AUD/JPY (Monday early Europe) | ~114.15 |
| Australia CPI (Feb y/y) | 3.7% |
| Australia CPI forecast (Mar y/y) | 4.7% |
| RBA May 5 outlook | Possible 25 bps hike if inflation rises |
| BoJ policy rate expectation | Hold at 0.75% |
BoJ Outlook: Policy Steady as Inflation Trends Emerge
The Bank of Japan (BoJ) is expected to keep its policy rate at 0.75%. The decision comes on Tuesday.
Meanwhile, the BoJ continues to assess higher energy costs. These costs may affect inflation in Japan.
Recent data showed inflation rose in March. This was the first increase in five months. Therefore, markets will closely watch the BoJ statement.
Understanding the Drivers of the Japanese Yen
The Japanese Yen (JPY) is one of the most traded currencies. It reacts strongly to economic data and policy changes.
In addition, interest rate gaps and market sentiment drive the Yen. These factors often move it sharply.
BoJ Policy and Its Role in Yen Movements
The Bank of Japan influences the Yen through monetary policy. It also intervenes in currency markets at times.
In the past, the BoJ tried to weaken the Yen. However, it avoids frequent intervention due to political concerns.
From 2013 to 2024, ultra-loose policy pushed the Yen lower. More recently, policy shifts have given the Yen some support.
Yield Gaps and Risk Sentiment Drive JPY Moves
Yield differences between Japan and the US strongly affect the Yen. Wider gaps usually weaken it.
However, this gap has narrowed recently. The BoJ has moved away from ultra-loose policy. At the same time, other central banks have eased rates.
Risk sentiment also matters. The Yen acts as a safe-haven currency. Therefore, it strengthens during stress. In contrast, it weakens during risk-on markets like the current environment.
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