AUD/JPY gains despite intervention warnings

The AUD/JPY currency pair edged up on Monday, as the Australian Dollar remained firm following the latest monetary policy decision by the People’s Bank of China.

On Monday, the PBoC left its benchmark one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50%, respectively. Given the strong trade linkages between China and Australia, the decision is providing a supportive backdrop for the Australian Dollar, which is often viewed as sensitive to developments in the Chinese economy.

Domestic monetary policy is also lending support to the Australian Dollar. After keeping the cash rate unchanged this month, Reserve Bank of Australia Governor Michele Bullock reiterated that inflation had remained elevated and cautioned that additional rate hikes could not be entirely dismissed.

Meanwhile, the Japanese Yen remains weak even as authorities issue renewed warnings about potential intervention. Japan’s Finance Minister Satsuki Katayama reiterated on Monday that officials were prepared to act against excessive currency moves at any time, while declining to specify particular intervention levels.

The Yen is also being pressured by concerns linked to the economic fallout from the Middle East conflict and ongoing disruptions to energy flows through the Strait of Hormuz. Iran announced the closure of the strategic route after accusing the United States and Israel of breaching a ceasefire, while US President Donald Trump warned of further military action against Iran if Hezbollah continues attacks on Israel.

These geopolitical and energy-related developments are currently outweighing expectations for additional monetary tightening by the Bank of Japan. The minutes of the BoJ’s April meeting revealed that some board members supported a faster pace of rate hikes to avoid an inflation overshoot.

The AUD/JPY currency pair was last up 0.10% on the day to trade at 113.21.