After IMF comments, the Japanese yen declines, and the AUD/JPY rises beyond 95.00.

• After the International Monetary Fund’s cautious comments on Friday, the AUD/JPY reduces its daily losses.
• Japan should be on the lookout for any potential ripple effects from the increased volatility in international markets, the IMF said.
• The dovish sentiment surrounding the RBA’s policy outlook may provide difficulties for the AUD.

For the third day in a row, the AUD/JPY is still weak, trading at 95.20 on Friday during Asian trading hours. The Japanese yen (JPY) weakens after the International Monetary Fund (IMF) made cautious comments on Friday, which stops the decline in the AUD/JPY cross. As global market volatility increases, Japan should be on the lookout for possible ripple effects that could affect its financial institutions’ liquidity, the IMF cautioned.

The IMF also warned that Japan has to keep a careful eye on the dangers connected to the Bank of Japan’s rate increases, such as increased expenses of repaying government debt and a possible rise in company bankruptcies. As the Australian dollar (AUD) declines due to dovish opinion over the Reserve Bank of Australia’s (RBA) policy outlook, the AUD/JPY cross is under pressure to decline. The 95% chance of an RBA rate drop in February has increased from 4.35% to 4.10%, according to market forecasts.

Since November 2023, the Australian central bank has kept the Official Cash Rate (OCR) at 4.35%, stressing that policy easing won’t be considered until inflation has “sustainably” returned to its target range of 2% to 3%.

Ongoing trade concerns between the US and China, Australia’s main trading partner, are another factor driving the AUD lower. China’s Commerce Ministry imposed a 15% duty on US coal and LNG imports, as well as an additional 10% tariff on crude oil, farm equipment, and some cars, in reaction to the new 10% US tariff that went into force on Tuesday. According to Reuters, US President Donald Trump and Chinese President Xi Jinping are scheduled to talk about possible tariff rollbacks, but there is still hope that trade tensions would be eased.

Interest rates: what are they?

Financial institutions impose interest rates on loans to borrowers, which are then paid to depositors and savers as interest. Base lending rates, which are established by central banks in reaction to shifts in the economy, have an impact on them. Targeting a core inflation rate of about 2% is typically part of central banks’ duty to maintain price stability. The central bank may lower base lending rates in an effort to stimulate lending and strengthen the economy if inflation drops below its target level. The central bank often raises base lending rates in an effort to reduce inflation if it gets significantly above 2%.

What impact do interest rates have on gold prices?

Because it increases the opportunity cost of holding gold rather than investing in an interest-bearing asset or putting money in the bank, higher interest rates generally have an impact on the price of gold. A high interest rate frequently causes the value of the US dollar (USD) to increase, which decreases the price of gold because it is valued in US dollars. This has an effect on markets that depend on prop firm tech for trading efficiency.