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• AUD/JPY struggled as the Bank of Japan is widely expected to raise rates further this year.
• The BoJ’s hawkish stance is reinforced by a 1.8% decline in real cash earnings, reflecting persistent inflation.
• The AUD found support from stronger-than-expected GDP growth and robust trade data from Australia.

AUD/JPY pares its daily losses, hovering around 93.30 during European trading hours on Monday. The currency cross faced pressure as the Bank of Japan (BoJ) is widely expected to hike rates further this year as part of its monetary policy normalization.

Investor expectations for another BoJ rate hike were reinforced by data released earlier on Monday, showing a 1.8% decline in real cash earnings due to persistent inflation. Additionally, optimism that last year’s substantial wage hikes will continue this year supports the case for further policy tightening. This has driven Japanese government bond (JGB) yields higher, narrowing the rate differential between Japan and other economies, and ultimately benefiting the lower-yielding JPY.

The Australian Dollar (AUD) received support from stronger-than-expected GDP growth and trade data from Australia released last week. On the monetary policy front, the latest Reserve Bank of Australia (RBA) Meeting Minutes indicated caution regarding further interest rate cuts, clarifying that February’s rate reduction does not signal a commitment to continued easing.

The AUD/JPY cross may face challenges as rising global trade tensions dampened investors’ risk appetite. China's retaliatory tariffs on certain US agricultural products went into effect on Monday, in response to last week's US tariff increase from 10% to 20% on Chinese imports, given China’s role as Australia’s largest trading partner.

Moreover, China announced on Saturday that it will impose a 100% tariff on Canadian rapeseed oil, oil cakes, and peas, along with a 25% levy on aquatic products and pork from Canada. he move comes as retaliation against tariffs introduced by Canada in October, escalating trade tensions. This marks a new front in a broader trade conflict largely driven by US President Donald Trump's tariff policies.

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