Market Update: AUD/JPY and Japanese Yen Weakness
The AUD/JPY was around 113.65 on Monday, showing a modest gain of 0.16% for the day. This rise comes amid continued weakness in the Japanese yen, which has supported the currency pair, despite some disappointing economic data from China that has somewhat limited the gains of the Australian dollar.
The latest economic figures from China have raised concerns about the growth of the world’s second-largest economy, which, well, isn’t great news for the Australian dollar given how closely Australia trades with China. Retail sales in China in April increased by just 0.2% year-on-year, falling short of expectations of 2% and 1.7%. Also, industrial production saw a decline of 4.1% compared to last year, which was also less favorable than the anticipated 5.9%. Additionally, fixed asset investment dropped by 1.6% against predictions of a 1.6% increase.
Even with this backdrop, the Japanese yen faces ongoing pressure from risk-sensitive currencies. Rising oil prices are particularly tough for the yen, as Japan relies heavily on energy imports. This situation compels energy importers in Japan to sell large amounts of yen for US dollars to pay higher energy costs.
Japan’s financial concerns are further adding to the yen’s struggles. Reports have surfaced suggesting that the Japanese government might consider issuing new bonds to manage the extra budget, which has contributed to rising yields on Japanese government bonds and a weakening yen.
In a recent commentary, MUFG highlighted that a mix of rising US yields, dropping Japanese government bond prices, and potential new bond issuances is a significant driver of the yen’s continued weakness. The bank also expressed concerns that if USD/JPY nears the 160.00 mark again, it might trigger intervention from Japanese authorities.
Meanwhile, government officials in Japan are keeping a close eye on the situation. Chief Cabinet Secretary Seiji Kihara mentioned on Monday that the administration is monitoring market developments, especially long-term interest rates, with a high level of alertness. However, he refrained from discussing any potential interventions in the foreign exchange markets.
That said, losses for the yen have been somewhat mitigated by expectations surrounding monetary tightening from the Bank of Japan. Recently, a board member of the Bank of Japan, Kazuyuki Masu, advocated for a prompt interest rate hike. His reasoning? There are growing inflation risks tied to the ongoing conflict and soaring energy prices that seem more entrenched by the day.
