Reserve Bank of Australia (RBA):
Current cash rate: 4.10% (expected to cut to 3.85% on May 20).
RBA on a dovish pivot driven by progress on inflation (trimmed mean CPI: 2.9% in Q1) and global trade risks.
Bank of Japan (BoJ):
Current policy rate: 0.50% (held steady in May).
Outlook: BoJ signaled potential hikes if economic conditions improve, but weak GDP (-0.7% annualized in Q1) and U.S. tariffs (24% on Japanese goods) limit tightening scope
The upcoming Reserve Bank of Australia (RBA) rate cut, widely expected to be a 25 basis point reduction at the May 20, 2025 meeting, is anticipated to have a short-term bearish impact on AUD/JPY, primarily by putting downward pressure on the Australian dollar (AUD) relative to the Japanese yen (JPY). Here’s why:
Key Points on the Impact of the RBA Rate Cut on AUD/JPY
AUD Under Pressure Due to Rate Cut Expectations:
Growing market consensus around the RBA’s rate cut has already led to AUD depreciation, causing AUD/JPY to edge lower below the 92.21 level as of late April 2025. Lower interest rates reduce the yield advantage of the AUD, making it less attractive to carry traders and investors seeking higher returns.
Economic Uncertainties and Trade Outlook:
The RBA’s cautious, data-dependent approach amid rising economic uncertainties and global trade tensions (especially U.S.-China relations) adds to downward momentum for AUD/JPY. However, signs of easing U.S.-China trade tensions could provide some support to the AUD, limiting the downside.
JPY Dynamics:
The Japanese yen has weakened recently due to reduced safe-haven demand amid improving global trade sentiment, which has somewhat offset AUD weakness. However, ongoing expectations of further Bank of Japan (BoJ) rate hikes in 2025 support the yen, applying pressure on AUD/JPY.
Moderating Factors:
Reduced Aggressive Rate Cut Bets: Recent data, including a hotter-than-expected Australian Wage Price Index, has tempered expectations for aggressive RBA cuts, which could limit AUD/JPY losses.
BoJ Policy Outlook: BoJ’s commitment to possible further rate hikes supports the yen, creating a headwind for AUD/JPY.
Technical and Sentiment Outlook:
The pair has paused recent gains and is vulnerable to further downside if the RBA confirms the cut and signals a cautious path forward. However, dip-buying interest could emerge on declines due to improving trade optimism and softer USD dynamics.
Summary
Factor Impact on AUD/JPY
RBA 25 bps rate cut (May 20) Bearish AUD, downward pressure
Signs of easing US-China trade Potential support for AUD
BoJ rate hike expectations Yen strength, bearish for AUD/JPY
Wage growth in Australia Limits aggressive AUD weakness
Global trade sentiment Supports yen weakness, offsets AUD pressure
Conclusion
The anticipated RBA rate cut is expected to weigh on AUD/JPY in the short term, primarily due to reduced yield appeal of the AUD. However, improving global trade sentiment and tempered expectations for aggressive rate cuts may cushion losses. The yen’s strength from BoJ tightening expectations will also continue to exert downward pressure on the pair.
Current cash rate: 4.10% (expected to cut to 3.85% on May 20).
RBA on a dovish pivot driven by progress on inflation (trimmed mean CPI: 2.9% in Q1) and global trade risks.
Bank of Japan (BoJ):
Current policy rate: 0.50% (held steady in May).
Outlook: BoJ signaled potential hikes if economic conditions improve, but weak GDP (-0.7% annualized in Q1) and U.S. tariffs (24% on Japanese goods) limit tightening scope
The upcoming Reserve Bank of Australia (RBA) rate cut, widely expected to be a 25 basis point reduction at the May 20, 2025 meeting, is anticipated to have a short-term bearish impact on AUD/JPY, primarily by putting downward pressure on the Australian dollar (AUD) relative to the Japanese yen (JPY). Here’s why:
Key Points on the Impact of the RBA Rate Cut on AUD/JPY
AUD Under Pressure Due to Rate Cut Expectations:
Growing market consensus around the RBA’s rate cut has already led to AUD depreciation, causing AUD/JPY to edge lower below the 92.21 level as of late April 2025. Lower interest rates reduce the yield advantage of the AUD, making it less attractive to carry traders and investors seeking higher returns.
Economic Uncertainties and Trade Outlook:
The RBA’s cautious, data-dependent approach amid rising economic uncertainties and global trade tensions (especially U.S.-China relations) adds to downward momentum for AUD/JPY. However, signs of easing U.S.-China trade tensions could provide some support to the AUD, limiting the downside.
JPY Dynamics:
The Japanese yen has weakened recently due to reduced safe-haven demand amid improving global trade sentiment, which has somewhat offset AUD weakness. However, ongoing expectations of further Bank of Japan (BoJ) rate hikes in 2025 support the yen, applying pressure on AUD/JPY.
Moderating Factors:
Reduced Aggressive Rate Cut Bets: Recent data, including a hotter-than-expected Australian Wage Price Index, has tempered expectations for aggressive RBA cuts, which could limit AUD/JPY losses.
BoJ Policy Outlook: BoJ’s commitment to possible further rate hikes supports the yen, creating a headwind for AUD/JPY.
Technical and Sentiment Outlook:
The pair has paused recent gains and is vulnerable to further downside if the RBA confirms the cut and signals a cautious path forward. However, dip-buying interest could emerge on declines due to improving trade optimism and softer USD dynamics.
Summary
Factor Impact on AUD/JPY
RBA 25 bps rate cut (May 20) Bearish AUD, downward pressure
Signs of easing US-China trade Potential support for AUD
BoJ rate hike expectations Yen strength, bearish for AUD/JPY
Wage growth in Australia Limits aggressive AUD weakness
Global trade sentiment Supports yen weakness, offsets AUD pressure
Conclusion
The anticipated RBA rate cut is expected to weigh on AUD/JPY in the short term, primarily due to reduced yield appeal of the AUD. However, improving global trade sentiment and tempered expectations for aggressive rate cuts may cushion losses. The yen’s strength from BoJ tightening expectations will also continue to exert downward pressure on the pair.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.