- AUD/JPY is moving steadily back closer to a multi-week high reached on Wednesday.
- The RBA’s hawkish stance and positive risk tone continue to benefit the Aussie.
- Expectations of another BoJ rate hike in 2024 should limit JPY losses and slow the cross.
The AUD/JPY pair attracted some dip-buying during the Asian session on Thursday and jumped back above the 99.00 level in the last hour, although it remains below a three-week high hit the previous day.
The Australian Dollar (AUD) continues to receive support from a more hawkish stance adopted by the Reserve Bank of Australia (RBA). Indeed, the Australian central bank reiterated on Tuesday that policy will need to be restrictive until confidence is restored that inflation is moving sustainably towards the target range. In addition, RBA Governor Michele Bullock stated that recent data has not significantly influenced the policy outlook.
Moreover, the latest consumer inflation figures released on Wednesday showed that core CPI remains above the RBA’s 2-3% target range and is not sufficient to justify rate cuts in the near term. Meanwhile, the RBA’s semi-annual Financial Stability Review (FSR) revealed that the risk of widespread financial stress remains limited. Moreover, a positive risk tone weighs on the safe-haven Japanese Yen (JPY) and benefits the risk-sensitive Aussie.
That said, growing acceptance that the Bank of Japan (BoJ) will raise interest rates again later this year should help limit deeper JPY losses and keep a lid on the AUD/JPY cross. Expectations were reaffirmed by the BoJ meeting minutes released today, which showed that board members shared the view on the need to be vigilant against the risk of excess inflation and that it was appropriate to moderately adjust the degree of monetary support.
Even from a technical perspective, the formation of a ‘Death Cross’ on the daily chart – with the 50-day Simple Moving Average (SMA) crossing below the all-important 200-day SMA – calls for some caution for bullish traders. Therefore, any subsequent move higher is more likely to face strong resistance and remain capped near the psychological level of 100.00, or the 200-day SMA, which should now act as a pivotal turning point for the AUD/JPY pair.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets the country’s monetary policy. Its mandate is to issue banknotes and carry out monetary and foreign exchange control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan has been pursuing ultra-loose monetary policy since 2013 in order to stimulate the economy and fuel inflation amid a low-inflation environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing money to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further relaxed policy by first introducing negative interest rates and then directly controlling the yield on its 10-year government bonds.
The Bank of Japan’s massive stimulus has caused the Yen to depreciate against its major currency peers. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-high inflation. The Bank of Japan’s policy of keeping rates low has led to a widening spread with other currencies, dragging down the value of the Yen.
The weak yen and the surge in global energy prices have caused Japanese inflation to rise, exceeding the Bank of Japan’s 2% target. However, the Bank of Japan judges that a sustainable and stable achievement of the 2% target is still not in sight, so a sharp change in current monetary policy seems unlikely.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
