AUD/JPY continues its upward trend, trading around 94.20 in the Asian hours on Monday. The Australian Dollar (AUD) is gaining against other currencies following China’s positive economic data, which is vital for Australia’s trade.
China reported a 4% increase in retail sales year-over-year for January-February, up from December’s 3.7%. Industrial production rose 5.9% during the same period, surpassing the 5.3% forecast but down from the previous reading of 6.2%.
AUD Strength And Yen Weakness
The AUD/JPY pair benefits from the AUD’s strength and a weakening Japanese Yen (JPY) due to improving sentiment after China announced a plan to boost consumption. Measures include increasing wages and stabilising markets.
Despite this, the AUD/JPY pair could encounter resistance as expectations rise for further interest rate hikes by the Bank of Japan (BoJ). The central bank is expected to maintain its current policy at its upcoming meeting.
Recently, major Japanese firms have committed to substantial wage increases for the third successive year, responding to inflation and labour shortages. This rise in wages is likely to enhance consumer spending and could provide the BoJ with more options for future rate adjustments.
The Australian Dollar has been strengthening, lifted by China’s latest economic figures. A rise in retail sales and industrial production indicates growing economic activity, which is particularly relevant given Australia’s trade ties with China. The better-than-expected data has supported demand for the higher-yielding Australian currency, pushing the pair further up.
On the other side, the Yen has been under pressure. China’s commitment to stimulating domestic consumption, through wage increases and market stability measures, has improved risk sentiment, drawing investors away from traditionally safer assets. This shift has made the Japanese currency less attractive.
Bank Of Japan Policy Outlook
However, upward movement in the pair could eventually slow down. Anticipation is growing that the Bank of Japan might tighten policy further. While its upcoming meeting is likely to hold the current stance, persistence in wage growth could give room for a different approach later. Large Japanese businesses have now agreed to raise wages again, which should enhance household spending and, in turn, inflationary pressures.
For those focusing on derivatives, the next few weeks should be watched carefully. The recent lift in wages strengthens arguments for a more hawkish policy from policymakers in Tokyo. If signs emerge that the central bank is leaning towards adjustments, the Yen’s direction could shift. But if China’s measures prove effective in sustaining risk appetite, the pair may continue its current path. Timing entries and exits carefully will be essential, especially as further data emerges and central banks provide clarity on their plans.
