AUD/JPY trades below 96.00 due to rising odds of more BoJ rate hikes

• AUD/JPY faces challenges as the BoJ is widely expected to raise interest rates further.
• The risk-sensitive currency cross amid rising global uncertainties following fresh tariffs from the US President Donald Trump.
• Australia’s Unemployment Rate increased to 4.1% in January from 4.0% in December, as expected.

AUD/JPY loses ground for the second successive day, trading around 95.80 during the European hours on Thursday. This downside of the currency cross could be attributed to the growing acceptance that the Bank of Japan (BoJ) would hike interest rates further.

Additionally, the Japanese Yen (JPY) gains ground as the hawkish Bank of Japan (BoJ) expectations push the Japanese government bond (JGB) yields to their highest levels in more than a decade. The resultant narrowing of the rate differential between Japan and other countries provides an additional boost to the JPY.

Additionally, the AUD/JPY cross depreciates as the risk-sensitive Australian Dollar (AUD) faces challenges, while the safe-haven Japanese Yen gains ground due to a fresh wave of the global risk aversion trade, triggered by US President Donald Trump’s tariff threats. Trump confirmed that a 25% tariff on pharmaceutical, semiconductor, and auto imports will take effect in April, further escalating global trade tensions.

The downside of the AUD/JPY cross could be restrained as the Australian Dollar (AUD) gains ground against its peers following the release of domestic employment data. Australia’s seasonally adjusted Unemployment Rate rose to 4.1% in January from 4.0% in December, aligning with market expectations. Additionally, Employment Change came in at 44K for January, down from a revised 60K in December (previously 56.3K), but still exceeding the consensus forecast of 20K.

Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser stated while speaking to Bloomberg News on Thursday that the central bank’s policy “is still restrictive.” Hauser noted that the latest jobs data showed little cause for concern. Hauser also emphasized that Australia’s monthly CPI data remains incomplete, requiring a wait for quarterly figures to gain a clearer picture. While market expectations suggest three to four rate cuts, the RBA remains uncertain. The central bank’s primary focus is still on inflation, while global economic uncertainty poses potential risks to Australia’s economy.