Anna 
During Monday’s European session, the AUD/JPY pair experienced a reduction in its intraday gains, settling around 104.20 amidst a prevailing risk-averse sentiment in the market. The Australian Dollar (AUD) initially saw appreciation but later retraced its gains following China’s announcement regarding its interest rates.
China’s central bank, the People’s Bank of China (PBOC), opted to maintain the one-year and five-year Loan Prime Rates (LPR) at 3.45% and 3.95%, respectively. This decision influenced market sentiment, prompting traders to await the release of the Reserve Bank of Australia’s (RBA) Meeting Minutes scheduled for Tuesday.
However, the AUD faces challenges as Australia’s 10-year government bond yield hovers around 4.2%, marking its lowest level in a month. This decline in bond yields follows a softer domestic jobs report for the first quarter, with sluggish wage growth leading to diminished expectations of any interest rate hikes by the RBA.
On the JPY front, the substantial interest rate differential between Japan and other countries continues to exert selling pressure on the Japanese Yen (JPY), consequently bolstering the AUD/JPY cross. The Bank of Japan (BoJ) made significant policy shifts in March by abandoning its negative interest rate policy, and there is speculation that the BoJ might reduce bond purchases at the June policy meeting. BOJ Governor Kazuo Ueda has also indicated that there are no immediate plans to sell the central bank’s ETF holdings.
Recent findings from a survey conducted by the Bank of Japan (BoJ) revealed that Japan may be on the cusp of witnessing significant changes in corporate activity. Many firms expressed challenges in hiring enough workers if wages were to be cut, while others are beginning to pass on rising labor costs to sales prices. Manufacturers highlighted FX stability as a critical factor desired from the BoJ’s monetary policy, signaling ongoing concerns within the Japanese business landscape.
