AUDJPY or AUD/JPY stands for the pair of currencies composed of the Australian Dollar and the Japanese Yen. Because neither is the US Dollar, this is is a cross pair. The value corresponds to how many Japanese Yen (the quote currency) are need to buy an Australian Dollar (the base currency).

Characteristics of the Pair

This cross tends to have a high level of liquidity, although it’s volatility is somewhat less than might be expected from the amount of money involved. Although there is some disparity between the underlying countries, at least their economies are in the same league: Australia’s GDP for 2017 came in at $1.37T, a little bit less than a third of Japan’s at $4.78T. Both countries are highly developed free markets, with a significant amount of their economies relying on exports.

Japan, however, focuses on manufacturing and high-tech industry and services; chief exports from Japan include electronics and cars. Additionally, Japan’s high population density means that it has to import a significant portion of its food.

After peaking in the early ’90s, Japan’s economy has struggled to return to substantial growth, plagued by a series of internal issues including lack of population growth and reluctance to undergo structural reforms. Many analysts point to Japan’s decades-long deficit spending and accommodative monetary policy as a cause of serious headwinds for the country.

Australia has the opposite population problem: lots of land and natural resources, leading to commodities and agricultural products becoming their primary exports. Their currency became free floating as recently as 1983, making it one of the latest to be included in the markets. However, the country has built a consistent reputation for fiscal responsibility.

The big players

Australian monetary policy is set by the Reserve Bank of Australia (RBA), which has the job of keeping the currency stable within a target inflation range of 2-3% annual.

The RBA is known for being quite conservative and intervening less frequently than other central banks. Those interventions can move the currency quite a lot, however. Often, just the expectation of a potential intervention will move the currency.

Japanese monetary policy is set by the Bank of Japan (BOJ), which officially targets inflation at 2%, but hasn’t reached that target in years, leading to the longest period of accommodative monetary policy in history.

What makes the pair tick

The AUDJPY is basically a carry trade pair. Japan’s low-interest-rate policy contrasts with Australia’s policy of having unusually high-interest rates.

Additionally, Japan is seen as a safe-haven currency, while the Aussie fluctuates with commodity prices. Australia is also highly dependant on its largest trading partner: China.

The pair tends to mirror investor sentiment, rising when investors have risk appetite, and falling during periods of world economic uncertainty. In that sense, it has a bit of similarity to the AUDUSD.