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AUD/JPY is appreciating further beyond the 109.00 mark, its highest level since May 1991.

  • AUD/JPY continues to rise for the third consecutive day and hits a new multi-decade high.
  • Risk appetite weighs on safe-haven JPY and offers support amid hawkish RBA expectations.
  • Speculation that the BoJ could act soon in response to the weakening JPY and limit any further gains.

The AUD/JPY pair is gaining positive traction for the third consecutive day and is climbing to its highest level since May 1991, around the 109.35 area during the Asian session on Thursday. The momentum is sponsored by a combination of factors, although speculations that the Bank of Japan (BoJ) could raise interest rates in response to a weakening Japanese Yen (JPY) could limit any further gains.

Moreover, a Bloomberg report on Tuesday said that the BoJ is holding three face-to-face meetings with banks, securities firms and financial institutions to assess a feasible pace for reducing its purchases of Japanese Government Bonds. Meanwhile, Reuters reported on Wednesday, citing unnamed sources, that the BoJ will likely cut this year’s economic growth forecast and project inflation to remain around its 2% target in the coming years at its meeting later this month. Adding to this is the prevailing risk-on environment, which tends to weigh on the safe-haven JPY and benefit the risk-sensitive Aussie, which is seen as a tailwind for the AUD/JPY cross.

The sharp move higher could also be attributed to bets that the Reserve Bank of Australia (RBA) could be hiking interest rates again. That said, speculations that Japanese authorities will eventually step in to prop up the domestic currency could hold traders back from placing fresh bullish bets around the AUD/JPY cross. Market participants, however, now view the 165.00 mark for the USD/JPY pair as a new line in the sand for intervention. This, in turn, could do little to inspire JPY bulls, which, coupled with this week’s break through the 108.60 horizontal resistance, suggests that the path of least resistance for the AUD/JPY cross is to the upside.

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the spread between Japanese and US bond yields, and risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key to the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to political concerns of its major trading partners. The BoJ’s current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the BoJ and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.

The Bank of Japan’s stance of maintaining an ultra-loose monetary policy has led to an increase in policy divergence with other central banks, in particular with the US Federal Reserve. This favours the widening of the spread between US and Japanese 10-year bonds, which favours the Dollar against the Yen.

The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money into the Japanese currency due to its perceived reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.

Source: Fx Street

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