AUD/JPY is trading around 90.80 during European hours, falling back from previous session gains. The Australian Dollar weakens amid light trading with local markets closed for the Good Friday holiday.
Minutes from the Reserve Bank of Australia’s meeting revealed uncertainty regarding the timing of the next interest rate move. Job data in Australia showed unemployment steady at 4.1% but job gains were lower than expected, sparking speculation of a possible rate cut in May.
japan inflation trends
Japan’s National Consumer Price Index increased by 3.6% year-on-year in March, maintaining three years above the Bank of Japan’s 2% target, though slightly below February’s 3.7%. The “core-core” CPI jumped to 2.9% from 2.6%, while core inflation hit 3.2%, aligning with forecasts.
These figures precede the BoJ’s policy meeting on May 1, where rates are expected to remain at 0.5%, with possible downward adjustments in growth outlook due to global trade tension. Interest rates influence currency attractiveness, potentially affecting Gold prices and economic stability. The Fed funds rate is a crucial US interest rate monitored by the market through the CME FedWatch tool for insights on monetary policy decisions.
While AUD/JPY sits near 90.80, it’s been shedding gains from the prior session, weighed down in part by tepid domestic participation owing to the Good Friday break. With liquidity thinner than usual, this soft performance may not spell a definitive trend, but it has added another light layer of pressure on the AUD. The subdued tone from RBA minutes compounds this, showing policymakers aren’t yet settled on the timing for their next rate move. That adds a degree of uncertainty that tends to ripple into derivatives linked to yields and currency expectations.
Labour data out of Australia appears stable on the surface—headline unemployment steady at 4.1%. But the softer-than-predicted job additions beneath that figure are what markets latched onto. Already there’s chatter about a potential policy easing as early as May, a view underpinned by subdued wage growth and patchy household demand. Given the tightening bias that had shaped sentiment earlier this year, that’s a sharp shift.
In Japan, the focus rests on inflation trends. March brought a 3.6% rise in headline CPI, marking another month above the BoJ’s 2% target. But it’s the persistence, not the pace, that’s catching broader attention. While this latest headline number came in a touch softer than February’s, deeper measures—like the “core-core” CPI rising to 2.9%—signal underlying strength. That’s the metric which strips away the noise from volatile items, and it has kept ascending. Coming into the 1 May BoJ policy meeting, everything points to no adjustment on the interest rate front. However, with Japan being so sensitive to shifts in external demand, adjustments to their economic outlook—particularly on exports—are being weighed.
us interest rate expectations
Rates matter because they tilt capital flows. Traders structuring volatility or delta risk in AUD/JPY have likely started adjusting expectations on carry, at least in short tenors. As Japan maintains its longstanding rate posture and Australia flirts with more dovish clues, forward rate differentials may narrow. This compresses carry appeal, which has been a key driver for this cross in recent months. Elevated Japanese inflation, if it drags on, increases the probability—however distant—of policy normalisation down the line, though timing for that remains remote according to current pricing.
Across the Pacific, US interest rate expectations continue to hold sway over broader risk sentiment. Fed futures are still actively monitored via CME’s FedWatch tool to gauge the probability of policy shifts. Traders tend to use these expectations not only for outright positioning but also to fine-tune hedging exposures involving rate-sensitive pairs or synthetic structures.
Looking ahead, we remain alert to shifts in implied volatility on both AUD and JPY legs—particularly with options pricing in post-holiday reactions. Carry structures need re-examining under the lens of revised rate path assumptions, with a tighter focus on positioning around event risk. Any widening or flattening in swap spreads or shifts in forward points will warrant close tracking, as they offer clues on where institutional flows are reallocating.
As the next BoJ and RBA meetings come closer, cross-volatility may start showing lift, reflecting not just monetary policy divergence but also potential for headlines on trade frictions, which would likely affect JPY more directly. For those managing leverage or holding exposure via cross-gamma or delta-neutral positions, we’ll be reassessing ranges and triggers more actively over the next fortnight.
