The baseline outlook for the AUD remains bearish, as it is closely tied to trade with China, which is currently facing tariff threats from the US. In contrast, the JPY is expected to remain supported due to its safe haven status amid ongoing uncertainty.

AUD: Affect by China tariffs

The Antipodean currencies, particularly the AUD, have emerged as major underperformers since the announcement of new U.S. tariffs—primarily due to their high-beta nature and sensitivity to global risk sentiment. From a direct trade perspective, Australia faces relatively limited impact given its already low trade exposure to the U.S., and despite being subject to a 10% tariff (now under a 90-day pause). However, the AUD found little relief from this pause, as the greater risk lies in the spillover effects from U.S.-China trade tensions. The AUD continues to trade as a liquid proxy for the Chinese yuan (CNH), making it vulnerable to developments on that front. Notably, China has now been subjected to a cumulative 145% in U.S. tariffs, and in response, has raised its own tariffs on U.S. goods from 84% to 125%, effective April 12. China has also signaled it will resolutely pursue countermeasures should the U.S. escalate further. As such, the intensifying trade conflict between the U.S. and China remains a key downside risk for the AUD in the near term.

Looking ahead, market focus will shift to Australia’s upcoming employment data and, more critically, ongoing trade developments. While the February labor report surprised to the downside, RBA Governor Bullock downplayed the weakness during the April meeting, reaffirming that the labor market remains tight with no material signs of deterioration. As a result, employment data is unlikely to significantly influence market pricing or the RBA’s near-term stance. Instead, the central bank’s focus remains firmly on inflation risks—particularly the potential second-round effects stemming from U.S. tariffs. In all, as long as trade tensions between the U.S. and China show no signs of de-escalation, the AUD is expected to stay under pressure, offering a “sell-on-rally” opportunity.

JPY: Safe heaven currency

As a traditional safe haven currency, the JPY has remained one of the key winners in the G10 FX space following the announcement of new U.S. tariffs. Although President Trump’s decision to implement a 90-day pause on reciprocal tariffs briefly eased investor concerns and temporarily lifted USD/JPY, the rebound was short-lived. Global trade uncertainty remains elevated due to the unpredictable nature of Trump’s protectionist policies. Beyond trade headlines, the yen remains fundamentally supported over the medium term by three key factors: rising expectations for BoJ rate hikes, growing risk of U.S. stagflation, and political resistance—both domestically and from the U.S.—toward further yen depreciation.

First, market expectations for BoJ tightening remain modest, with only 13bps of hikes priced in for 2025. However, BoJ Governor Ueda has reiterated a hawkish bias, suggesting that if financial conditions stabilize, further rate hikes could come back into focus. This opens the door for repricing of policy expectations, which would be supportive for the JPY. Second, although the 90-day tariff pause may provide temporary relief, underlying U.S. economic weakness raises the risk of stagflation. The still-effective universal 10% tariffs are likely to weigh on activity while pushing up import prices, creating a stagflationary backdrop. This scenario complicates the Fed’s policy response—limiting its ability to cut rates aggressively—and keeps broader market sentiment fragile. Unless there is a significant improvement in investor confidence, safe haven demand for the yen is expected to persist. Third, political pushback against excessive yen weakness—both from Japan and the U.S.—continues to act as a buffer. U.S. Treasury Secretary Bessent recently stated that “it is natural for the yen to appreciate,” highlighting the firm opposition within the U.S. administration toward further JPY depreciation.

Looking ahead, the JPY calendar is relatively light, with the upcoming Japan CPI being the primary data point of interest. Should inflation figures remain firm, this would further reinforce the BoJ’s hawkish tilt and increase the likelihood of additional tightening later in 2025. Meanwhile, in the absence of any major positive breakthroughs in U.S. trade policy, the yen is expected to remain well-supported amid ongoing geopolitical and trade-related uncertainties.

AUD/JPY 4H

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