Westpac write “traditional risk barometer AUD/JPY has had a patchy relationship with the global equity mood over the past year. The correlation between AUD/JPY daily log returns vs global equities has occasionally slipped to near zero, but over the past month it has tightened, the 30-day correlation above 0.60 as banking turmoil has rattled markets.”

• “Yet with markets viewing banking developments as important for both equity prices and Fed policy, it has been hard to separate risk appetite from yield spreads. The yen was notably weak in February and into early March when Fed funds pricing peaked, then rose sharply on banking turmoil. AUD/JPY probed near Y86 on 24 March, a low since March 2022.”
• “Market excitement over Bank of Japan policy has cooled, with the 10-Year JGB yield back to 0.30%, well inside the BoJ’s target range of +/0.50%. The BoJ continues to argue that inflation will fall back below the 2% target over the next year or two.”
• “So for now, the BoJ will maintain monetary policy much looser than other G10 CBs, including the RBA, even under new Governor Ueda. “
• “Renewed financial turbulence could see another probe of AUD/JPY Y86, but multi-month we expect a push towards and probably through the February highs around Y93, as A$ benefits from Asia’s global growth leadership.”