Yen under pressure as PM calls for cautious BoJ policy
The yen traded near a record low against the euro and hovered at a nine‑month trough versus the U.S. dollar on Thursday after Japan’s new prime minister signaled a preference for a gradual approach to rate hikes. Investors absorbed the remarks as they weighed the outlook for the Bank of Japan (BoJ) to slow the pace of policy normalization, a move that could widen the gap between Tokyo’s stimulus framework and tightening cycles elsewhere in Asia and beyond.
The yen has faced persistent downward pressure for months as expectations of a sooner withdrawal of BoJ stimulus diverged from aggressive tightening cycles in other major economies. Prime Minister’s comments added a new line to the ongoing narrative: even as inflation cools and the economy shows resilience, Tokyo could opt for a cautious path rather than a steep ascent in interest rates. Traders immediately pared back any bets on a swift BoJ pivot, pushing the currency lower against both the euro and the dollar.
BoJ policy expectations and market impact
Analysts say the new leadership in Tokyo might be inclined toward a gradual normalization, with the central bank maintaining its expansive policy framework longer than some market participants had anticipated. The prospect of slower rate hikes can influence cross‑border capital flows, affecting both the returns on Japanese assets and the yen’s value. In recent sessions, the yen’s glide toward fresh lows against the euro underscores how critical policy signaling has become in shaping currency risk premia.
While the BoJ remains the wild card in the region, the overarching theme for the global currency market is a synchronization of easing and tightening cycles across economies. A slower BoJ tightening path could benefit exporters and tourists, but it can also weigh on the yen if other central banks continue to tighten, widening interest rate differentials that guide carry trades and risk sentiment.
AUD climbs on strong jobs data amid global rate expectations
Meanwhile, the Australian dollar posted gains, hitting a two‑week high after a fresh wave of jobs data that exceeded expectations. The labor market strength supports bets that Australia’s central bank may maintain or begin to lift rates to cool an otherwise robust economy. The AUD often moves in concert with risk sentiment and commodity prices, so a positive labor report further emboldens traders who expect the RBA to stay on a cautious tightening path rather than retreating into a prolonged pause.
Australia’s data release injected a note of resilience into the Asia‑Pacific region’s currency landscape. The currency’s strength is not just a function of domestic figures; it also reflects shifting expectations in global growth and inflation, as investors reassess the timing of rate moves across major economies, including the United States and Europe. If the AUD continues its upward trajectory, it could widen the differential with the yen, amplifying the yen’s weakness in cross‑rates and improving the appeal of Australian assets to international buyers.
What traders are watching next
Market participants will be focused on upcoming inflation readings, central bank communications, and any new guidance from Tokyo about policy normalization. In the short term, the yen could remain sensitive to headlines about BoJ policy discussions, especially any signals that the central bank plans to shift its policy stance gradually rather than abruptly. At the same time, the Australian dollar’s trajectory will hinge on further labor market data and the RBA’s own rhetoric about inflation and growth. A continuation of solid jobs data paired with cautious rhetoric from the RBA could sustain the AUD’s momentum while the yen continues to face headwinds from the BoJ’s evolving stance.
For traders, diversification across assets and currencies remains essential as volatility persists around policy expectations. Investors should watch cross‑rate moves involving the yen, the AUD, and other regional currencies as catalysts from policy meetings and economic data emerge. The balance of risks and the pace of rate normalization across major economies will shape the path of these currencies in the days and weeks ahead.
