AUD/JPY rises to near 94.50 as Trump considers 35% tariffs on Japan

• AUD/JPY appreciates as the Japanese Yen weakens amid uncertainty, with Trump considering additional tariffs of 30% or 35% on Japan.
• The Japanese Yen also faces challenges due to the BoJ’s caution over interest rate hikes.
• Australia’s Retail Sales rose by 0.2% MoM in May, against the expected 0.4% increase.

AUD/JPY retraces its recent losses registered in the previous session, trading around 94.50 during the Asian hours on Wednesday. The currency cross appreciates as the Japanese Yen (JPY) faces challenges following the recent comments from the US President Donald Trump.

President Trump hit the newswires on Tuesday, saying that he is considering adding additional 30% or 35% tariffs on Japan and not extending the self-imposed July 9 deadline on the currently-suspended reciprocal tariffs. Trump expressed his doubt on reaching a deal with Japan.

Additionally, the Bank of Japan (BoJ) adopt caution on unwinding its ultra-loose policy forced investors to delay their expectations for early interest rate hikes. The BoJ new board member Kazuyuki Masu emphasized on Tuesday that the central bank should not rush into raising interest rates given various economic risks.

Bank of Japan Governor Kazuo Ueda also noted that any future rate hikes will depend on the overall inflation dynamic, including wage growth and expectations. Ueda highlighted the headline inflation has been above 2% for nearly three years, underlying inflation remains below target.

However, the upside of the AUD/JPY cross could be restrained as the Australian Dollar (AUD) against its peers following the release of weaker-than-expected domestic economic data. The Australian Bureau of Statistics (ABS) showed that Retail Sales rose 0.2% month-over-month in May, compared to a flat 0% in April (revised from -0.1%). The reading came in below the market expectations of 0.4%. Meanwhile, Building Permits rose by 3.2% in May, as compared to the previous decline of 4.1%, but falling short of expected 4.8% increase.