AUD/JPY holds losses below 110.00 due to potential for Japan’s FX intervention

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AUD/JPY has pared its recent gains from the previous trading day, hovering around 109.70 during the Asian hours on Monday.

AUD/JPY weakens as the Japanese Yen strengthens after BoJ’s Ueda’s remarks signal potential intervention against excessive currency moves.
BoJ March “Summary of Opinions” showed policymakers remain confident about further near-term tightening.
Australian Government will halve fuel excise for three months and temporarily scrap heavy vehicle road user charges.

AUD/JPY has pared its recent gains from the previous trading day, hovering around 109.70 during the Asian hours on Monday. The currency cross, as the Japanese Yen (JPY) strengthens on Bank of Japan (BoJ) Governor Kazuo Ueda's comments, signaling that authorities may step in to counter excessive one-sided moves in the currency.

BoJ Governor Ueda said FX movements have a significant impact on Japan’s economy and inflation, adding the Bank will closely track currency trends. He noted policy will be adjusted as needed, based on how FX shifts influence growth, price outlook, and associated risks.

The “Summary of Opinions” from the March BoJ policy meeting, released on Monday, indicated that several policymakers remain confident about further monetary tightening in the near term. One member said it would be appropriate to continue raising interest rates if economic and price projections are realized, while another emphasized that the timing of future hikes will depend on developments in the Middle East, alongside trends in wages, inflation, and financial conditions.

The AUD/JPY cross also faces challenges as the Australian Dollar (AUD) remains under pressure as rising energy prices, driven by supply concerns, coincide with fading hopes for a swift resolution to the Iran conflict.

Iran-backed Houthi forces in Yemen launched their first strikes on Israel over the weekend, widening the regional conflict and warning that attacks will continue until operations against Iran and its allies cease. The group also threatens Red Sea shipping routes and key Saudi energy infrastructure, heightening risks to global supply. Meanwhile, the United States is reportedly preparing for an extended ground campaign in Iran, deploying thousands of troops to the region.

Australian Prime Minister Albanese announced on Monday that the National Cabinet has approved a National Fuel Security Plan. The government will halve fuel excise on petrol and diesel for three months and temporarily eliminate the heavy vehicle road user charge.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.