AUD/JPY holds losses near 114.50 after Australian CPI inflation data

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AUD/JPY weakens to near 114.50 in Wednesday’s early Asian session.
Australia’s CPI inflation rose to 4.6% YoY in March, softer than expected.
BoJ left the policy rate unchanged at 0.75% at its April policy meeting on Tuesday.

The AUD/JPY cross declines to around 114.50 during the early Asian trading hours on Wednesday. The Australian Dollar (AUD) softens against the Japanese Yen (JPY) following the release of the Australian inflation report. Traders brace for Japan’s Tokyo Consumer Price Index (CPI) data, which is due later on Friday.

Data released by the Australian Bureau of Statistics (ABS) on Wednesday showed that the country’s CPI inflation climbed to 4.6% YoY in March from 3.7% in February, driven largely by a fuel shock from the Middle East conflict. This figure came in softer than the expectations of 4.7%. Meanwhile, the monthly CPI rose 1.1% in March, compared to the previous reading of 0%.

The Aussie attracts some sellers in an immediate reaction to the softer-than-expected inflation data. However, a tight labor market and stronger-than-expected growth in late 2025 have supported expectations for another interest rate hike by the Reserve Bank of Australia (RBA) in May. This, in turn, could help limit the AUD’s losses.

On Japan’s front, the Bank of Japan (BoJ) decided to hold the short-term interest rate steady at 0.75% after concluding its two-day monetary policy review meeting on Tuesday, as widely expected.

According to the policy statement, the central bank will continue to raise interest rates in accordance with developments in the economy, prices, and financial markets. It said wages and prices may face upward pressure more than what the output gap suggests. The BoJ will scrutinise the timing and pace of policy adjustment with a close eye on economic and price impact from Middle East war developments.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.