AUD/JPY

The Australian dollar/yen currency pair refers to the exchange rate between the Australian dollar and the Japanese yen, that is, how many Japanese yen can be exchanged for one Australian dollar. This currency pair reflects the relative strength between the two economies, as well as changes in global risk appetite. The symbol for the Australian dollar/yen currency pair is AUD/JPY, which is also sometimes called Aussie Yen or AUDJPY.

Factors Affecting AUD/JPY

Difference in Interest Rates

The central banks of Australia and Japan have formulated different monetary policies, which have affected the interest rate levels of the two countries. Generally speaking, interest rates in Australia are higher than in Japan, which means investors holding Australian dollars can get higher returns, attracting capital inflows. Conversely, interest rates in Japan are lower than in Australia, which means investors holding yen can borrow funds at low cost to invest in other high-yielding assets, which is known as leveraging or conducting arbitrage trades. Therefore, when the interest rate differential between Australia and Japan widens, the AUD/JPY pair typically rises; when the interest rate differential narrows, the AUD/JPY pair typically falls. 

Economic Performance

Economic indicators such as economic growth, inflation, trade balance, employment, and consumer confidence in Australia and Japan will affect the currency demand and supply of the two countries, thereby affecting the exchange rate. Generally speaking, when Australia's economic performance is better than Japan's, the AUD/JPY currency pair will rise; when Japan's economic performance is better than Australia's, the AUD/JPY currency pair will fall.

Commodity Prices

Australia is a commodity exporter, and its main export commodities include iron ore, coal, gold, natural gas, etc. Japan is a commodity importing country, and its main imported commodities include crude oil, natural gas, food, etc. Therefore, changes in commodity prices will affect the trade income and costs of the two countries, thereby affecting the exchange rate. Generally speaking, when commodity prices rise, the AUD/JPY pair will rise; when commodity prices fall, the AUD/JPY pair will fall. 

Global Risk Appetite

The AUD/JPY currency pair is also affected by global market sentiment, as it represents a combination of high- and low-risk currencies. The Australian dollar is seen as a risk currency because of its strong correlation with global economic growth and commodity demand. The yen is considered a safe-haven currency because of its strong correlation with global recession and market turmoil. Therefore, when global risk appetite increases, investors tend to seek higher returns, sell Japanese yen and buy Australian dollars, and the AUD/JPY currency pair will rise; when global risk appetite decreases, investors tend to seek lower risks , sell the Australian dollar and buy the Japanese yen, the Australian dollar/yen currency pair will fall.

AUD/JPY Trend Analysis

• The interest rate gap between Australia and Japan widens: Due to Australia's strong economic recovery and rising inflationary pressures, the market expects the Reserve Bank of Australia to raise interest rates ahead of schedule. Japan's economic recovery is weak and inflation is sluggish, and the market expects the Bank of Japan to maintain its loose policy. Therefore, the interest rate differential between the two countries increases the attractiveness of holding Australian dollars for investors.

• The difference in economic performance between Australia and Japan has widened: As Australia has effectively controlled the COVID-19 epidemic and resumed normal life and business activities, its economic growth, employment, consumer confidence and other indicators have performed well. Japan has been continuously affected by the COVID-19 epidemic and has implemented multiple emergency declarations. Its economic growth, employment, consumer confidence and other indicators have all performed poorly. Therefore, the gap in economic performance between the two countries increases the demand and supply of currencies in both countries.

• Rising commodity prices: Due to the global economic recovery and increased demand, commodity prices have risen sharply over the past year, especially Australia's major export commodities such as iron ore, coal, and gold. This increases Australia's trade earnings and currency strength. As a commodity importing country, Japan is facing rising import costs and pressure from currency depreciation.

• Increased global risk appetite: Global market sentiment has gradually improved over the past year due to the control of the new crown epidemic and the rollout of vaccines, and investors have become more optimistic about the prospects for global economic growth and commodity demand. This prompted investors to reduce their safe-haven demand for the Japanese yen and increase their risk appetite for the Australian dollar. 

Conclusion

The AUD/JPY currency pair is a currency pair that reflects the relative strength between the two economies, as well as changes in global risk appetite. Over the past year, the AUD/JPY currency pair has shown a trend of increased volatility, mainly due to factors such as the interest rate differential between Australia and Japan, divergent economic performance, rising commodity prices and increased global risk appetite. In the coming period, it is expected that these factors will continue to support the upward trend of the Australian dollar/yen currency pair, but we should also pay attention to possible risks and uncertainties, such as changes in the new crown epidemic, adjustments to central bank policies, and fluctuations in market sentiment. wait.