Key Moments
- AUD/JPY trades near 113.85 in early European dealings on Tuesday as the cross loses upside momentum.
- Australia’s Unemployment Rate rose to 4.5% in April from 4.3% in March, sharply reducing market expectations for a June RBA rate hike.
- Japan’s core CPI excluding special factors increased 2.8% in April, above the BoJ’s 2% target and up from 2.5% in March.
Risk-Off Tone Pressures AUD/JPY
The Australian Dollar weakened against the Japanese Yen in Tuesday’s early European session, with AUD/JPY trading around 113.85 as the pair lost momentum. Sentiment toward the Australian currency deteriorated after weaker domestic labor market data coincided with renewed geopolitical tensions in the Middle East.
Australia’s latest employment figures surprised to the downside, undermining previous expectations that the Reserve Bank of Australia (RBA) could consider further policy tightening in the near term. At the same time, concerns about fresh US military action in the Middle East weighed on risk-sensitive assets, including the Aussie, and supported demand for safer currencies such as the Yen.
Australian Labor Data Undercuts RBA Hike Expectations
Market participants scaled back projections for additional RBA rate hikes following an unexpected increase in the jobless rate. Australia’s Unemployment Rate climbed to 4.5% in April from 4.3% in March, marking the highest level in roughly four and a half years.
In response to the data, the implied probability of a rate increase at the RBA’s next meeting fell sharply. According to financial market pricing provided by Westpac, the likelihood of a rate hike dropped to 3% from 13% prior to the release of the employment report.
| Indicator | Period | Latest Reading | Previous Reading | Comment |
|---|---|---|---|---|
| Unemployment Rate (Australia) | April | 4.5% | 4.3% | Highest in about four and a half years |
| RBA next-meeting hike probability | – | 3% | 13% | Market pricing (Westpac) |
| AUD/JPY | Early European session (Tuesday) | 113.85 (around) | – | Pair loses momentum |
Middle East Developments Damp Risk Appetite
Investor optimism regarding a potential US-Iran peace arrangement was curtailed by reports of new US strikes in the Middle East, further pressuring risk assets such as the Australian Dollar. The BBC reported on Tuesday that the US Central Command stated it had carried out fresh strikes on southern Iran, targeting Iranian missile sites and boats attempting to lay mines.
The US military said the operations were conducted in “self-defense” and were intended “to protect our troops from threats posed by Iranian forces.” The renewed military activity reinforced a risk-off tone in global markets, favoring defensive currencies including the Yen over higher-yielding counterparts.
Japanese Inflation Data Surpasses BoJ Target
On the Japanese side, inflation data released by the Bank of Japan (BoJ) added another layer of support to the Yen. Japan’s core consumer inflation rate excluding one-off factors, based on the central bank’s new gauge, reached 2.8% in April. This pace exceeded both the BoJ’s 2% objective and the 2.5% reading recorded in March.
In contrast, the core-core Consumer Price Index (CPI) that excludes special factors eased to 2.2% in April from 2.6% in March. Even so, the new index – which removes institutional influences such as education and energy-related subsidies – showed a significantly quicker year-on-year increase than the 1.4% rate in the benchmark core CPI figure published by the government.
| Japanese Inflation Measures | April | March | BoJ Target / Benchmark | Notes |
|---|---|---|---|---|
| BoJ new core CPI (ex one-off factors) | 2.8% | 2.5% | Above 2% BoJ target | Central bank’s new gauge |
| Core-core CPI (ex special factors) | 2.2% | 2.6% | – | BoJ measure excluding special factors |
| Government benchmark core CPI | 1.4% (YoY) | – | – | Slower than BoJ’s new index |
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