AUD/JPY traded near 113.65 on Monday, up 0.16%. The pair rose as the Japanese Yen stayed weak, while poor Chinese data kept the Australian Dollar from gaining more.
China’s April Retail Sales rose 0.2% year on year, versus forecasts of 2% and 1.7% previously. Industrial Production grew 4.1% year on year, below the 5.9% forecast, and Fixed Asset Investment fell 1.6% year on year versus expectations for a 1.6% rise.
Yen Weakness Driven By Energy And Fiscal Concerns
The Yen remained under pressure against risk-sensitive currencies as oil prices stayed higher. Japan’s energy importers need more US Dollars to pay higher bills, which increases Yen selling.
Japan’s fiscal outlook also weighed on the Yen after Reuters reported the government is considering new debt to fund an extra budget. This helped push Japanese bond yields up and added to Yen weakness.
MUFG linked Yen softness to higher US yields, falling Japanese Government Bonds, and possible new debt issuance. It also said intervention risk could rise if USD/JPY nears 160.00 again.
Officials said they are monitoring markets closely, including long-term rates. Expectations of Bank of Japan tightening limited losses after board member Kazuyuki Masu called for a swift rate rise due to inflation linked to war and higher energy costs.
Strategy Outlook For Audjpy
Given the persistent weakness in the Japanese Yen, we see the path of least resistance for AUD/JPY as remaining upward for now. The fundamental pressure from Japan’s fiscal and energy situation appears to be outweighing the concerning economic data from China. Therefore, maintaining a cautiously long position or looking for dips to buy into seems like a viable strategy in the coming weeks.
The pressure on the Yen is significant, especially with WTI crude oil prices holding firm around the $85 per barrel mark, which keeps Japan’s energy import bill elevated. This structural outflow of Yen is a powerful force that is unlikely to reverse quickly. We also note that Japanese 10-year government bond yields recently pushed above 1.0%, reflecting concerns over new debt issuance that will likely continue to weigh on the currency.
However, we must remain extremely vigilant about the risk of intervention from Japanese authorities. We all remember the direct currency interventions in the spring of 2024, which caused sharp, sudden reversals when USD/JPY pushed past the 160.00 level. Traders should consider using options, such as buying out-of-the-money JPY calls, to hedge against a similar surprise move that could erase weeks of gains in an instant.
The other major risk is a shift in tone from the Bank of Japan. Since the BoJ ended its negative interest rate policy back in 2024, the market has been sensitive to the pace of further normalization. If upcoming inflation data for Japan shows persistent strength, chatter about a faster rate hike schedule could rapidly strengthen the Yen and unwind carry trades.
On the Australian Dollar side, the story remains tied to China’s economic performance. The recent slowdown in Chinese industrial production to 4.1% is a clear headwind, capping the Aussie’s independent strength. For this reason, AUD/JPY may offer a more tempered upside than a pair like USD/JPY, but it also means any positive shift in sentiment from China could add significant fuel to this rally.
