AUD/JPY witnessed a decline as the Japanese Yen (JPY) strengthened on Friday, following potential government intervention. Masato Kanda, Japan’s vice finance minister for international affairs, refused to comment on whether Japan had intervened in the market. It is important to note that Japanese banks were closed for Greenery Day on Friday. The Bank of Japan (BoJ) released Minutes from the March meeting, with insights into the monetary policy outlook. One member noted that the economy’s reaction to a short-term rate increase to approximately 0.1% is expected to be minimal. Several members expressed the opinion that market forces should mainly determine long-term rates.
The Australian Dollar (AUD) may strengthen due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). The RBA is expected to maintain its key policy rate at 4.35% for a fourth consecutive meeting and likely until the end of September, according to a Reuters poll of economists. The shift in expectations, from two 25 basis point cuts in an April survey, follows news that inflation declined less than expected in the last quarter and the labor market remains tight. The Judo Bank Australia Composite Purchasing Managers Index (PMI) fell to 53.0 in April from 53.3 prior, indicating a slower pace of growth in private sector output. Business activity growth was primarily limited to the service sector as manufacturing output continued to decline. The ASX 200 Index advanced following positive movements on Wall Street, driven by reassurances from the US Federal Reserve.
The AUD/JPY trades around 100.50 on Friday, testing to break below the lower boundary of the ascending channel. The 14-day Relative Strength Index (RSI) is positioned above the 50 level. A break below the lower boundary could lead the AUD/JPY cross to navigate the region around the psychological level of 100.00, with further decline potentially strengthening the bearish bias. The key resistance is observed at the lower boundary of the wedge around the psychological level of 103.80. A rebound back into the ascending wedge could potentially strengthen the bullish bias and push the AUD/JPY cross toward the psychological level of 105.00. Japan is considering implementing tax breaks for the repatriation of corporate profits into the Yen, which may potentially be included in the annual mid-year policy blueprint.
The Japanese Yen’s value is broadly determined by the performance of the Japanese economy, the Bank of Japan’s policy, the differential between Japanese and US bond yields, and risk sentiment among traders, among other factors. The BoJ has sometimes intervened in currency markets, generally to lower the value of the Yen. The current BoJ ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its main currency peers. The policy divergence between the BoJ and other central banks, particularly the US Federal Reserve, has widened, supporting a differential between the 10-year US and Japanese bond yields favoring the US Dollar against the Japanese Yen. The Japanese Yen is often viewed as a safe-haven investment, leading investors to put money into the currency during times of market stress due to its perceived reliability and stability. Turbulent times are likely to strengthen the Yen’s value against riskier currencies.
