Both the Australian Dollar (AUD) and the Euro (EUR) have gained ground against the Japanese Yen (JPY) for the second consecutive day, with AUD/JPY trading around 110.40 and EUR/JPY around 179.00 during European hours on Tuesday [1][2]. The primary driver behind the Yen's weakness is the rise in global oil prices, which significantly increases import costs for Japan's energy-dependent economy [1][2].
Despite these pressures, the Japanese Yen may find support from several factors: anticipation of more aggressive monetary tightening by the Bank of Japan (BoJ), the ongoing unwinding of global carry trades, and signs of domestic investors repatriating foreign assets [1][2]. These elements are seen as providing a steady cushion for the currency, potentially restraining further upside in both AUD/JPY and EUR/JPY [1][2].
For the AUD/JPY cross, market expectations of a Reserve Bank of Australia (RBA) rate hike later this month are providing additional support. Analysts at Rabobank note that Andrew Hauser's recent hawkish speech has led markets to anticipate hikes in both this month and November, with a more restrictive stance aligning with US Treasury preferences, especially regarding non-housing sectors of the economy [1].
On the EUR/JPY front, the Euro is bolstered by persistent hawkish sentiment from the European Central Bank (ECB). Key ECB officials have warned of lingering upside inflation risks, suggesting further rate hikes are possible following the recent quarter-point increase. Leading banks such as Goldman Sachs, Citi, and Barclays forecast another rate hike in December, with LSEG data placing the odds at 94%. Citi expects the tightening cycle could extend into March 2027. Commerzbank has revised its outlook, now expecting a third rate hike in December to bring the deposit rate to 2.75%, and no longer anticipates rate cuts in 2027 due to persistently high core inflation [2].
In China, a close trading partner of Australia, August retail sales rose 0.4% year-over-year (YoY) versus an expected 0.8% and July's 0.6%. Industrial production climbed 5.2% YoY, beating the 4.8% forecast and July's 4.5%. Fixed asset investment fell 7.2% YoY, matching expectations and worsening from July's 6.7% decline [1].
CONCLUSION
Rising global oil prices are exerting downward pressure on the Japanese Yen, fueling gains in both AUD/JPY and EUR/JPY. However, central bank policy shifts—particularly anticipated tightening by the BoJ, RBA, and ECB—are shaping market expectations and could influence future currency movements. The outlook remains hawkish for both the RBA and ECB, with further rate hikes likely, while the Yen may find support from domestic and monetary factors.