AUD/JPY hovers around 112.50 after paring latest losses

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AUD/JPY pares its daily losses but remains in the negative territory, trading around 112.40 during the Asian hours on Monday.

AUD/JPY may further struggle as the Australian Dollar faces challenges due to increased risk aversion.
US Vice President JD Vance confirmed US–Iran talks in Islamabad ended without a deal after 21 hours of negotiations.
Japan’s 10-year bond yield rose to 2.47% as oil surged after US–Iran talks collapsed.

AUD/JPY pares its daily losses but remains in the negative territory, trading around 112.40 during the Asian hours on Monday. The currency cross faced challenges as the Australian Dollar (AUD) weakened as risk aversion increased after US Vice President JD Vance said Washington and Tehran failed to reach a peace agreement in Islamabad following 21 hours of talks.

US President Donald Trump said Washington would begin blockading all ships entering or leaving the Strait of Hormuz, while US Central Command (CENTCOM) confirmed operations targeting maritime traffic to and from Iranian ports from 10 AM ET (14:00 GMT) Monday.

Rising energy costs have also fueled inflation concerns, with Australia’s monthly inflation gauge hitting a record 1.3% in March, signaling renewed price pressures since late 2025. The Reserve Bank of Australia (RBA) has already raised rates by 50 basis points to 4.10%, and markets now expect another hike in May.

The downside of the EUR/JPY cross could be restrained as the Japanese Yen (JPY) struggles with stagflation concerns amid rising oil prices. Rising energy costs fueled expectations of a near-term Bank of Japan (BoJ) rate hike.

The BoJ is set to hold its next policy decision on April 28, where officials will evaluate whether elevated global energy and commodity prices justify tightening. Japan’s 10-year government bond yield rose to around 2.47% on Monday as oil prices surged following the breakdown of US–Iran peace talks.

The Sakura Report showed board members balancing upside inflation risks against downside growth risks following the April 6 branch managers’ meeting. All nine regions maintained that their economies were either “recovering moderately,” “picking up,” or “picking up moderately.”

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.