AUD/JPY slips toward 93.50 due to optimism over potential US-Japan trade agreement

AUD/JPY falls amid expectations of further BoJ interest rate hikes in 2025; optimism over a potential US-Japan trade deal. Japanese Prime Minister Shigeru Ishiba reiterated that Japan will not accept a preliminary deal that excludes provisions on automobiles The Reserve Bank of Australia is widely expected to implement a 25 basis point rate cut at its upcoming meeting. The AUD/JPY pair continues its downward trajectory for the second consecutive day, trading near 93.60 during Thursday’s European session. Amid expectations of further interest rate hikes by the Bank of Japan (BoJ) in 2025, optimism over a potential US-Japan trade deal is lending additional support to the Japanese Yen. Japan’s chief trade negotiator, Ryosei Akazawa, is reportedly expected to visit Washington as early as next week for a third round of trade negotiations with the US. Japanese Prime Minister Shigeru Ishiba reiterated that Japan will not accept a preliminary deal that excludes provisions on automobiles, and called on Washington to eliminate the 25% tariff on Japanese car exports. The AUD/JPY’s decline is driven by increased demand for the safe-haven Japanese Yen (JPY), amid persistent global trade uncertainties. Adding to the JPY’s strength is a broader rally in Asian currencies, spurred by speculation that Washington is advocating a weaker US Dollar as part of ongoing trade negotiations. The Trump administration contends that the relative strength of the Greenback disadvantages American exporters compared to their Asian counterparts. Meanwhile, the Australian Dollar (AUD) remains under pressure, weighing further on the AUD/JPY cross. The Reserve Bank of Australia (RBA) is widely expected to implement a 25 basis point rate cut at its upcoming meeting. However, easing trade tensions have led markets to scale back expectations for aggressive monetary easing. Investors now anticipate the RBA will lower the cash rate to around 3.1% by year-end, revised from previous forecasts of 2.85%. On the data front, the Australian Bureau of Statistics (ABS) reported a significant jump in Employment Change for April, rising to 89,000 from 36,400 in March—far exceeding the consensus forecast of 20,000. The Unemployment Rate remained steady at 4.1%, unchanged from the prior month. Tariffs FAQs Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas. Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers. There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs. During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes. Source: https://www.fxstreet.com/news/aud-jpy-slips-toward-9350-due-to-optimism-surrounding-potential-us-japan-trade-agreement-202505150836