AUD/JPY trades in positive territory around the 104.90 area during Asian trading hours on Monday, extending gains as the Japanese Yen comes under renewed pressure. The Yen’s weakness is largely driven by mounting fiscal concerns surrounding Prime Minister Sanae Takaichi’s expansive spending plans aimed at stimulating economic growth. At the same time, market participants remain alert to the risk of potential currency intervention, as Japanese business leaders have urged authorities to address the Yen’s persistent depreciation.
Bank of Japan Governor Kazuo Ueda reiterated that the central bank will continue to raise interest rates if economic activity and inflation evolve in line with its projections. Ueda emphasized that adjusting the degree of monetary accommodation is necessary to achieve sustainable growth, adding that Japan’s economy is expected to maintain a cycle of moderate wage and price increases.
Risk sentiment and geopolitical backdrop
The upside in the risk-sensitive AUD/JPY cross may be capped by periods of increased safe-haven demand, following a renewed rise in geopolitical tensions after the United States captured Venezuelan President Nicolás Maduro. Elevated global uncertainty typically supports the Yen, potentially limiting further advances in the cross.
China data and RBA expectations in focus
From the macroeconomic front, China’s RatingDog reported on Monday that the Services Purchasing Managers’ Index eased slightly to 52.0 in December from 52.1 in November. Given the close trade relationship between China and Australia, any signs of slowing momentum in the Chinese economy could have implications for the Australian Dollar.
Meanwhile, the AUD continues to draw support from growing expectations of further tightening by the Reserve Bank of Australia. Investors are closely watching Australia’s fourth-quarter CPI report due on January 28, with analysts noting that a stronger-than-expected core inflation reading could pave the way for a rate hike at the RBA’s February 3 policy meeting.
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