AUD/JPY breaks above 91.50 region after BoJ decision to keep interest rates and yield curve unchanged

• AUD/JPY has received a shot of adrenaline from the BoJ’s unchanged interest rate policy.
• The BoJ interest rate has been unchanged at -0.1% and the 10-year JGB around 0%.
• Investors expected an upward revision of the inflation forecasts for 2023 and 2024.

The AUD/JPY has staged a 180-point rally that has taken it to a one-week high in the vicinity of 91.65. The pair is trading at time of writing above 91.62, gaining 2.29% daily.

The Bank of Japan has kept interest rates unchanged at -0.1% and the 10-year Japanese Government Bond (JGB) target around 0%. Markets already expected an unchanged monetary policy, but the absence of an upward revision of the inflation forecasts for 2023 and 2024 and the lack of news on the successor to the BoJ have forced investors to dump the Japanese yen. The central bank has announced that it will continue with the large-scale purchase of JGB, and that it will provide prompt responses for each maturity.

Meanwhile, the release of the BoJ’s quarterly outlook report is also hinting at further action. The Japanese economy is likely to recover with the help of policy relief from the impact of the coronavirus pandemic, and supply constraints. The central bank will not hesitate to adopt further easing measures if necessary.

On the Australian front, the release of the December jobs report will trigger a strong action for the Australian dollar. According to consensus, the unemployment rate is expected to hold steady at 3.4%. Apart from that, the Australian economy should have added 22,500 new jobs to the labor market in December, down from 64,000 the previous month.