AUD/JPY steadies around 96.50, focus shifts to potential US tariff updates on China
- AUD/JPY holds ground following the release of the monthly Consumer Price Index.
- Australia’s monthly CPI rose by 2.5% YoY in January, compared to an anticipated 2.6% growth.
- The Japanese Yen may find support from rising bets of more BoJ’s rate hikes.
AUD/JPY maintains its position after registering losses in the previous session, trading around 96.50 during the Asian hours on Wednesday. However, the upside of the currency cross could be restrained after Australia’s monthly Consumer Price Index (CPI) showed a 2.5% year-over-year rise in January but fell short of market expectations for 2.6% growth.
Attention turns to potential updates from China’s Ministry of Commerce on talks between China’s Vice Commerce Minister and US business leaders regarding tariffs. A Bloomberg report on Tuesday revealed that the Trump administration plans to tighten chip export controls on China — a key trading partner for Australia. The US is reportedly considering stricter restrictions on Nvidia chip exports and additional limitations on Chinese firms like SMIC and CXMT.
The Japanese Yen (JPY) may find support amid a global risk-off mood and growing expectations of further interest rate hikes by the Bank of Japan (BoJ). The BoJ is expected to raise rates from 0.50% to 0.75% this year. According to Bloomberg, overnight index swaps fully price in a rate hike by September, with a 50% chance of an earlier move as soon as June.
Meanwhile, traders in Japan are preparing for a series of key economic reports set to be released on Friday. These reports — covering industrial production, retail sales, and Tokyo inflation — could offer crucial insights into the BoJ’s future monetary policy direction.
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.
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