AUD/JPY strengthens above 98.00 as Takaichi poised to become first female Prime Minister

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AUD/JPY gains traction to near 98.10 in Monday’s Asian session.
Sanae Takaichi is almost certain to become Japan’s first female Prime Minister on Tuesday.
China's Q3 GDP grew 4.8% YoY, as expected.

The AUD/JPY cross gains ground to around 98.10 during the Asian trading hours on Monday. The Japanese Yen (JPY) weakens against Australian Dollar (AUD) amid renewed concerns about Japan’s fiscal health. The preliminary reading of Australia S&P Global Purchasing Managers Index (PMI) reports for October will be released later on Friday.

Reuters repored ealry Monday that the ruling Liberal Democratic Party (LDP) and the Japan Innovation Party (JIP) have agreed to form a coalition government. A parliamentary vote to choose a prime minister is set for Tuesday.

Sanae Takaichi is expected to become Japan's next Prime Minister after reportedly securing crucial political backing for the top job, raising market expectations for big spending and loose monetary policy. Traders anticipate that the Bank of Japan (BoJ) would further delay raising interest rates, which undermines the JPY and create a tailwind for the cross.

Data released by the National Bureau of Statistics (NBS) on Monday showed that China’s economy grew at an annual rate of 4.8% in the third quarter (Q3) of 2025, compared to a 5.2% expansion in Q2. The figure came in line with the market consensus.

On a quarterly basis, the Chinese Gross Domestic Product (GDP) rate rose 1.1% in Q3 versus 1.1% prior, beating the estimation of 0.8%. Meanwhile, China’s annual June Retail Sales climbed by 3.0% versus 2.9% expected and 3.4% prior, while Industrial Production came in at 6.5% versus 5.0% estimate and 5.2% prior.

China's economic growth slowed to the weakest pace in a year in Q3 as a property crisis and trade tensions hurt demand. This, in turn, might cap the upside for the China-proxy Aussie in the near term, as China is a major trading partner for Australia.

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.