The Australian dollar against the Japanese yen exchange rate has risen to its highest level since 1990, driven by expectations of a ceasefire between the US and Iran, leading to increased risk appetite.

The Australian dollar against the Japanese yen exchange rate has risen to the highest level in over thirty years, confirming the rebound of risk sentiment driven by optimistic outlook for the long-term ceasefire between the US and Iran. During the New York trading session on Wednesday, the Australian dollar against the Japanese yen exchange rate soared to 114.112, a level unseen since September 1990. This trend coincided with a general rise in global stock markets, with the S&P 500 index hitting a new record high. Investors are betting that as the US and Iran show signs of extending the ceasefire agreement and restarting negotiations, tensions in the Middle East may ease. Carol Kong, a strategist at the Commonwealth Bank of Australia, stated that the broad strengthening of the Australian dollar against various currencies "indicates an improvement in market risk sentiment." She added: "As long as this optimistic sentiment continues, the trend of the Australian dollar may further extend, but considering the high risk of negotiations breaking down, we doubt whether this upward trend can be sustained in the long term. In addition, the Strait of Hormuz is still essentially closed, which will provide a floor for oil prices." The Australian dollar has risen by about 4% against the US dollar this month, making it the best-performing currency among the Group of Ten (G10) currencies, primarily due to the more hawkish policy outlook of the Reserve Bank of Australia and the positive correlation between the Australian dollar and the stock market. Meanwhile, due to cautious remarks made by Bank of Japan Governor Haruhiko Kuroda, expectations for a recent rate hike by the Bank of Japan have eased, causing the yen to lag behind other major currencies. Brendan Fagan, a strategist at Bloomberg, stated: "The more hawkish policy outlook of the Reserve Bank of Australia directly affects interest rates, supporting short-term interest rate differentials and increasing the attractiveness of the Australian dollar. At the same time, the positive correlation between the Australian dollar and the S&P 500 index has risen to its highest level since the beginning of the year, further solidifying its position as a global risk-beta indicator. The weakening of the US dollar and the steady rise of US stocks have also supported the rise of the Australian dollar." It is worth mentioning that Japanese authorities have intensified verbal warnings on exchange rate fluctuations. Japanese Finance Minister Koizumi expressed that, she had close consultations with US Treasury Secretary Scott Benet on Wednesday regarding exchange rate issues and reiterated that the authorities are prepared to take "bold" action when necessary. The rise of the Australian dollar against the Japanese yen has also increased the attractiveness of yen carry trade, as investors borrow low-yielding currencies to invest in high-yielding assets. The strategy of shorting the yen and buying the Australian dollar has yielded a return of about 10% so far this year. However, this trade also carries risks. Nick Twidale, Chief Market Analyst at AT Global Markets, stated: "This is still a good trade, but you must handle this volatility very cautiously." He pointed out that any surge in volatility could make holding this trade "painful."