AUD/JPY trades below 91.00 as Japan’s core inflation rises in March
- AUD/JPY stays subdued amid thin trading, as Australian markets remain closed for the Good Friday holiday.
- Australia’s March labor data has intensified speculation of a potential 25 basis point rate cut by the RBA in May.
- In Japan, the “core-core” CPI, , which excludes fresh food and energy—rose to 2.9% in March from 2.6% in February.
AUD/JPY retraces its recent gains from the previous session, trading around 90.80 during the European hours on Friday. The currency cross remains under pressure as the Australian Dollar (AUD) weakens in light trading, with local markets closed for the Good Friday holiday.
Minutes from the Reserve Bank of Australia's (RBA) March 31–April 1 meeting highlighted uncertainty around the timing of the next interest rate move. While the Board viewed the May meeting as an appropriate time to reassess policy, it emphasized that no decision had been pre-committed. Risks to both economic growth and inflation remain balanced to the upside and downside.
Australia’s March labor data showed the unemployment rate steady at 4.1%, but job gains missed expectations. This has fueled speculation of a potential 25 basis point rate cut in May, with some traders even considering a 50 basis point move amid growing concerns of a global slowdown tied to escalating tariffs.
In Japan, the National Consumer Price Index (CPI) rose 3.6% YoY in March, marking three consecutive years above the Bank of Japan’s (BoJ) 2% inflation target, though slightly below February’s 3.7%. The “core-core” CPI—excluding fresh food and energy—accelerated to 2.9% from 2.6%, while core inflation (excluding only fresh food) rose to 3.2%, in line with forecasts.
These inflation readings come ahead of the BoJ’s May 1 policy meeting, where the central bank is expected to maintain rates at 0.5% and potentially revise down its growth outlook as rising global trade tensions weigh on sentiment.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.