AUD/JPY Struggles Near 114.50 After Soft CPI

Key Moments

Cross Rate Action in Early Asian Trading

The AUD/JPY cross is under pressure around 114.50 during Wednesday’s early Asian session, with the Australian Dollar weakening against the Japanese Yen after the release of Australia’s inflation report. Market participants are now looking ahead to Japan’s Tokyo Consumer Price Index (CPI) figures, scheduled for Friday.

Australian Inflation Data and Market Response

Fresh figures from the Australian Bureau of Statistics (ABS) on Wednesday showed that consumer price inflation in Australia rose to 4.6% year-on-year in March, up from 3.7% in February. The move was largely attributed to a fuel shock linked to the Middle East conflict. However, the outcome was slightly below market expectations of 4.7%.

On a monthly basis, CPI advanced 1.1% in March, compared with 0% in the prior month. The softer-than-anticipated annual inflation reading prompted selling pressure in the Australian Dollar in the immediate aftermath of the release.

Despite this, a tight labor market and stronger-than-expected growth in late 2025 have underpinned expectations that the Reserve Bank of Australia (RBA) may deliver another interest rate increase in May. This prospect could provide some support and help contain downside in the AUD.

BoJ Holds Rate Steady and Signals Data-Dependent Path

On the Japanese side, the Bank of Japan concluded its two-day monetary policy review on Tuesday and opted to maintain the short-term interest rate at 0.75%, in line with expectations.

According to the policy statement, the BoJ will continue to raise interest rates in line with conditions in the economy, prices, and financial markets. The central bank indicated that wages and prices may come under more upward pressure than implied by the current output gap.

The BoJ also noted it will examine the timing and speed of policy adjustments carefully, paying particular attention to the economic and price implications stemming from developments related to the Middle East war.

Japanese Yen: Key Drivers Highlighted

The Japanese Yen (JPY) is described as one of the most actively traded currencies globally, with its valuation shaped primarily by the performance of the domestic economy, Bank of Japan policy, the interest rate differential between Japanese and US bonds, and overall risk sentiment in markets, among other elements.

One of the Bank of Japan’s mandates is currency control, making its policy moves especially important for the Yen. The central bank has, at times, intervened directly in currency markets, generally to weaken the Yen, though such actions are limited by political considerations involving major trading partners.

Over an extended period, the BoJ’s ultra-loose monetary stance contributed to a depreciation of the Yen against key counterparts as policy diverged from other major central banks. The subsequent decision to gradually unwind this ultra-loose framework, alongside interest rate cuts in other major economies, has narrowed the gap between 10-year US and Japanese bond yields, influencing USD/JPY dynamics.

The Yen is also regarded as a safe-haven asset. During periods of market stress, investors are more inclined to move capital into the Japanese currency due to its perceived stability. Such episodes typically support the Yen against currencies considered relatively riskier.