AUD/JPY climbs to near 96.50 as Ueda avoids offering clear guidance on the policy outlook
12.02.2025, 08:39

AUD/JPY climbs to near 96.50 as Ueda avoids offering clear guidance on the policy outlook

  • AUD/JPY strengthens as BoJ Governor Ueda holds back on clear guidance regarding interest rate policy.
  • BoJ Governor Ueda affirmed that the central bank will uphold its policy until a sustainable 2% inflation rate is achieved.
  • The AUD struggles amid increased risk aversion following new US tariffs and hawkish signals from Fed’s Powell.

AUD/JPY extends its winning streak for a third consecutive session, trading around 96.50 during European hours on Wednesday. The pair’s upside is attributed to the weaker Japanese Yen (JPY) after Bank of Japan (BoJ) Governor Kazuo Ueda refrained from providing clear guidance on the future path of interest rates.

During a parliamentary session, Ueda reiterated that the central bank would maintain its monetary policy until it achieves a sustainable 2% inflation rate, offering no definitive timeline for exiting Japan’s massive stimulus program.

In contrast, BoJ board member Naoki Tamura emphasized last week the need to raise the policy rate to at least 1% in the latter half of fiscal 2025. Additionally, stronger-than-expected wage and household spending data have bolstered the hawkish outlook for monetary policy.

However, the upside for AUD/JPY remains limited as the Australian Dollar (AUD) struggles amid increased risk aversion. Market sentiment soured after US President Donald Trump announced a 25% tariff hike, while Federal Reserve Chair Jerome Powell signaled that the central bank was in no rush to cut interest rates further.

Adding to pressure on the AUD, Trump’s trade adviser, Peter Navarro, criticized Australia late Tuesday, accusing the country of "killing the aluminum market." This came a day after Trump signed executive orders imposing tariffs on certain metal imports. Australia is now seeking exemptions from the new steel and aluminum tariffs, with Trump previously indicating he would give "great consideration" to the request due to the trade imbalance between the two nations.

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

 

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