Australian Dollar Gains vs Yen as RBA Stays Hawkish

Key Moments

RBA Policy Outlook Supports AUD

The AUD/JPY cross edged higher to trade near 113.60 during early European trading on Monday, as the Australian Dollar (AUD) gained ground against the Japanese Yen (JPY) following a hawkish policy stance from the Reserve Bank of Australia (RBA). The move came even as market participants remained wary of the risk of further currency intervention by Japanese authorities.

Last week, the RBA increased its Official Cash Rate (OCR) to 4.35%, bringing it back in line with its December 2024 peak as price pressures remained strong. This was the third consecutive rate increase this year. In its accompanying communication, the central bank noted that inflation had “picked up materially in the second half of 2025,” highlighting the impact of conflict in the Middle East on fuel and commodity prices.

The RBA also indicated that additional tightening was likely. Its projections pointed to a policy rate of 4.70% by the end of 2026, with no rate reductions anticipated before 2028, according to CNBC.

Yen Supported by Intervention Concerns

Despite the supportive backdrop for the Australian Dollar, the upside for AUD/JPY may be capped by intervention risk. Japanese authorities reportedly stepped into the foreign exchange market again during the Golden Week holiday period.

Market participants estimated the scale of these latest operations at around ¥4 trillion to ¥5 trillion (equivalent to $32 billion). Japan’s chief foreign exchange official, Atsushi Mimura, stated last week that further intervention remained a possibility.

Japanese Yen: Structural Drivers

The Japanese Yen (JPY) is among the most actively traded currencies globally. Its valuation is influenced by the overall health of the Japanese economy, the policy stance of the Bank of Japan (BoJ), interest rate differentials – particularly between Japanese and US government bonds – and broader risk sentiment in financial markets, among other elements.

Role of the Bank of Japan

One of the Bank of Japan’s mandates is currency control, making its policy choices pivotal for the Yen. The BoJ has, at times, intervened directly in foreign exchange markets, typically with the aim of pushing the Yen lower, although such actions are limited due to political sensitivities with key trading partners.

The central bank’s ultra-loose monetary approach between 2013 and 2024 contributed to Yen weakness against major counterparts as its stance diverged from that of other major central banks. “More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.”

Yield Differentials and Risk Sentiment

Over the past decade, the BoJ’s adherence to very accommodative policy contributed to a widening policy gap versus other central banks, most notably the US Federal Reserve. This divergence supported a larger spread between 10-year US and Japanese government bond yields, which in turn favored the US Dollar over the Yen. The BoJ’s decision in 2024 to begin moving away from its ultra-loose stance, combined with rate cuts in other major economies, has started to reduce this yield differential.

The Japanese Yen is also widely regarded as a safe-haven asset. In periods of heightened market stress, investors tend to increase exposure to the Yen because of its perceived stability, which can lead to Yen appreciation relative to currencies seen as riskier.