AUD/JPY trades near 93.00, downside risks appear amid tariff concerns
- AUD/JPY weakens amid growing concerns about a global tariff war.
- RBA’s February Meeting Minutes highlighted downside risks to the economy.
- Japan’s Unemployment Rate unexpectedly rose to 2.5% in January, from 2.4% prior.
AUD/JPY continues its decline, hovering around 92.80 during early European trading on Tuesday. The Australian Dollar (AUD) remains under pressure after the White House confirmed that US President Donald Trump signed an order raising tariffs on Chinese imports to 20%. Given China’s crucial role as Australia’s largest trading partner, any economic shifts in China could significantly impact the AUD. However, similar measures for Mexico and Canada have yet to be finalized.
Further weighing on the Aussie Dollar, the Reserve Bank of Australia’s (RBA) February Meeting Minutes highlighted downside risks to the economy. While the Board acknowledged labor market strength as a key reason to maintain interest rates, it noted that the current tightness was inconsistent with the central bank’s 2.5% inflation target. As a result, policymakers saw a stronger case for potential rate cuts.
On the economic data front, Australia’s Retail Sales rose 0.3% month-over-month in January, recovering from a 0.1% decline in December. However, the ANZ-Roy Morgan Australian Consumer Confidence Index fell to 87.7 from the previous week's 89.8, when it had reached its highest level since May 2022.
Despite AUD weakness, downside pressure on the AUD/JPY cross could be limited as the Japanese Yen (JPY) struggles after Japan’s Unemployment Rate unexpectedly rose from 2.4% to 2.5% in January, while corporate spending on plants and equipment declined by 0.2% in Q4.
Meanwhile, Japan’s Finance Minister, Katsunobu Kato, reaffirmed that the country is not actively seeking to devalue its currency, emphasizing Japan’s "basic stance on currency policy." Additionally, Economy Minister Ryosei Akazawa stated that government intervention in the currency market only occurs in response to "speculative" movements.
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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