The Australian dollar climbed for a third straight session against the Japanese yen on Wednesday, with AUD/JPY pushing toward 113.50 in European trade as improved risk appetite and rising oil prices weighed on the yen.
The move came amid renewed expectations for possible United States–Iran negotiations, which lifted broader risk sentiment and supported commodity-linked currencies such as the Australian dollar. At the same time, sustained gains in crude oil prices increased pressure on the yen, reflecting Japan’s heavy reliance on imported energy.
Middle East tensions, US stance keep backdrop fragile
In Washington, President Donald Trump said he was not considering an extension of the current ceasefire but signaled that negotiators could resume talks within days. He reiterated opposition to long-term restrictions on Iran’s nuclear enrichment program.
Prospects for a breakthrough remain uncertain after weekend talks in Islamabad ended without an agreement, even as the US president suggested a second round of talks could be held before the ceasefire expires on April 21.
The situation grew more tense after US Central Command confirmed the implementation of a naval blockade on Iranian ports and tighter controls on traffic through the Strait of Hormuz, fueling concerns about energy supply disruptions and adding to volatility across global markets.
Oil rally highlights divergence between Australia and Japan
Energy markets continued to price in geopolitical risk. Brent crude rose to about 96.25 US dollars per barrel, up 46.17% from a year earlier, while West Texas Intermediate traded near 92.57 dollars, a year-over-year gain of 49.71%, despite data showing a 6.1 million-barrel build in US crude inventories.
This backdrop underscores a structural divergence between the two economies: as a major commodity exporter, Australia tends to benefit when raw material prices climb, while Japan, which imports nearly 40% of its energy needs, generally sees its trade balance weaken, putting downward pressure on the yen.
RBA flags domestic headwinds as markets price in rate hike
Deputy governor Hauser of the Reserve Bank of Australia warned that the Australian economy faces a challenging period, pointing to elevated inflation and supply constraints tied to global energy instability. Policymakers are weighing the risk that volatile commodity prices could slow growth even as they keep upward pressure on consumer prices.
Money markets now see about a 64% probability that the RBA will raise its 4.10% cash rate at its May 5 meeting. Expectations for tighter policy have been reinforced by an International Monetary Fund forecast that projects Australian inflation at 4.0% in 2026, suggesting price pressures could remain above the central bank’s comfort zone for an extended period.
Bank of Japan watches energy shock as yen slides
In contrast, the Bank of Japan faces softer inflation and weaker domestic momentum. Governor Kazuo Ueda said the central bank is closely monitoring the impact of Middle East tensions on Japan’s growth outlook, warning that a sustained rise in energy costs could sap economic momentum later in the year.
Japan’s core inflation, excluding fresh food, slowed to 1.6% in February, its lowest reading in nearly four years and still below the BoJ’s 2% target. With inflation easing and energy costs rising, the policy backdrop for Japan remains markedly different from that of Australia.
That divergence has pushed the yen weaker across major currency pairs. The US dollar is approaching the 160 yen level, a psychologically important threshold that has previously triggered direct intervention by Japanese authorities. Officials at the finance ministry have already begun issuing verbal warnings about what they describe as excessive currency moves, signaling that the risk of sudden, sharp reversals in yen crosses, including AUD/JPY, is increasing.
Intervention risk hangs over yen as pressure builds
The yen remained under pressure on Wednesday as higher oil prices coincided with heightened uncertainty over supply flows through the Strait of Hormuz. Market analysts noted that discussions inside the Japanese government over possible measures to stabilize the currency are ongoing, with outright intervention seen as a live option if volatility intensifies.
Against this backdrop of geopolitical strain, rising energy prices and diverging monetary paths, traders in AUD/JPY face a landscape where risk sentiment can shift quickly. Any indications of progress or breakdown in US–Iran talks, or signs of policy action from Tokyo or Canberra, may trigger abrupt moves in the currency pair from current levels near 113.50.
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