During the European session on Monday, the AUD/JPY pair saw a reduction in its intraday gains, hovering around 104.20 amidst a prevailing sentiment of risk aversion. The Australian Dollar (AUD) initially appreciated but later relinquished its gains following China’s announcement regarding interest rates. The People’s Bank of China (PBOC) opted to maintain the one-year and five-year Loan Prime Rates (LPR) at 3.45% and 3.95%, respectively. Traders are now eagerly awaiting the release of the Reserve Bank of Australia‘s (RBA) Meeting Minutes scheduled for Tuesday.
Australian Dollar Faces Obstacles
Challenges loom for the Australian Dollar as the yield on Australia’s 10-year government bond hovers around 4.2%, marking its lowest level in a month. This decline in bond yields follows a softer domestic jobs report for the first quarter, signaling sluggish wage growth and leading markets to discount the likelihood of any interest rate hikes by the Reserve Bank of Australia (RBA).
JPY Dynamics
On the Japanese Yen (JPY) front, the substantial interest rate differential between Japan and other countries continues to exert selling pressure on the currency, consequently boosting the AUD/JPY cross. In March, the Bank of Japan (BoJ) abandoned its negative interest rate policy, further fueling speculation among traders that the BoJ might decrease bond purchases at the June policy meeting. BOJ Governor Kazuo Ueda also indicated that there are no immediate plans to sell the central bank’s ETF holdings.
Corporate Activity in Japan
The results of a survey conducted by the Bank of Japan (BoJ) to assess its past monetary easing measures indicate that Japan may witness significant changes in corporate activity. Many firms expressed concerns about their ability to hire sufficient workers if they were to reduce wages. Moreover, an increasing number of firms are passing on rising labor costs to sales prices. Manufacturers have identified FX stability as the most crucial factor they desire from the BoJ’s monetary policy.
