AUD/JPY hovers near 95.00, downside risks appear amid increased risk aversion
- AUD/JPY may weaken as risk aversion rises amid growing concerns over impending US auto tariffs.
- Global trade tensions intensify after US President Donald Trump announces a 25% tariff on auto imports.
- Japanese Prime Minister Shigeru Ishiba stated that Japan is considering countermeasures in response to the Trump administration’s auto tariffs.
AUD/JPY holds its ground after registering gains in the previous session, trading around 94.90 during early European hours on Thursday. However, the currency pair faced resistance as the Australian Dollar (AUD) weakened against its peers due to heightened risk aversion driven by concerns over impending US auto tariffs.
Late Wednesday, US President Donald Trump signed an order imposing a 25% tariff on auto imports, further escalating global trade tensions. The tariffs are set to take effect on April 2, with collection beginning the following day.
Despite this, the AUD found some support after President Trump hinted at plans to impose tariffs on copper imports within weeks—an earlier-than-expected move, as the Commerce Department had until November 2025 to decide on the matter. As Australia is a key copper exporter, this development lifted commodity prices, providing temporary relief for the AUD.
Further support for the AUD could come from expectations that the Reserve Bank of Australia (RBA) will maintain steady interest rates next week. In February, the RBA implemented its first 25-basis-point rate cut in four years. RBA Assistant Governor (Economic) Sarah Hunter reiterated the central bank’s cautious stance on further rate cuts, signaling a more conservative approach in its latest policy statement.
However, the upside for the AUD/JPY cross may be capped as the Japanese Yen (JPY) recovers amid its safe-haven appeal. Meanwhile, the US Dollar (USD) has lost some strength following President Trump’s confirmation that the 25% auto tariffs will be permanent throughout his second term.
Adding to JPY strength, Bank of Japan (BoJ) Governor Kazuo Ueda told parliament that the central bank would continue raising interest rates if economic projections remain on track. Ueda noted that economic growth has surpassed expectations, supported by rising incomes and stronger consumer spending.
Meanwhile, Japanese Prime Minister Shigeru Ishiba stated in parliament on Thursday that Japan would not rule out countermeasures against the Trump administration’s auto tariffs. Ishiba emphasized the need to protect national interests, arguing that as the largest investor in the US, Japan should not be treated the same as other nations. Despite Tokyo’s diplomatic efforts—including increased investments and energy purchases—Japan failed to secure an exemption from the tariffs.
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.