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AUD/JPY holds near 113.40 as Japan fiscal and inflation risks weigh on yen

Traders are also positioning for Australia jobs data later this week and look to a potential Bank of Japan rate hike in September, with swaps pricing about an 80% chance.

Reported · Written up by our desk · Major Pairs

FXStreet reports the AUD/JPY cross is trading in positive territory around 113.40 in early European hours Tuesday, with the yen weakening versus the Australian dollar.

The move is linked to mounting fiscal concerns in Japan and ongoing inflationary pressures, along with worries about elevated energy costs weighing on Japan’s oil dependent economy.

Markets are watching Australian jobs data due later Thursday, while Prime Minister Sanae Takaichi’s plan to cut the consumption tax on food to 1% for two years has raised concerns because the government has not identified an alternative revenue source and the measure is viewed as ineffective at combating inflation.

FXStreet also points to growing expectations for the Bank of Japan to raise rates at its September policy meeting, citing Reuters that the central bank is considering a hike as soon as September. It adds that overnight index swaps are pricing in about an 80% probability for a move, and references a DBS strategist saying market odds for a September BoJ hike surged to 81% from 21%, while expectations for a Fed hike fell to 32% from 72%.

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