AUD/JPY under pressure after BoJ holds rates at 0.75%

Key Moments:

Cross Under Pressure After BoJ Decision

AUD/JPY is weaker around 114.30 in Tuesday’s Asian trade, extending losses as the Japanese Yen (JPY) gains ground against the Australian Dollar (AUD) in the wake of the Bank of Japan’s (BoJ) latest policy announcement. The move in the cross follows the BoJ’s decision on interest rates and has focused attention on upcoming commentary from the central bank.

The pullback in the pair reflects a firmer JPY after the BoJ concluded its April meeting and left its policy rate unchanged. Market participants are now positioning ahead of Governor Kazuo Ueda’s press conference, looking for further guidance on the policy outlook.

BoJ Holds at 0.75% and Signals Data-Dependent Path

As broadly anticipated, the BoJ kept its short-term interest rate at 0.75% after wrapping up its two-day monetary policy review on Tuesday. In its policy statement, the central bank indicated it intends to continue raising interest rates in line with shifts in the economy, prices, and financial markets.

The statement noted that wages and prices could come under upward pressure beyond what the output gap alone would imply. The BoJ also highlighted that it will carefully assess the timing and pace of any policy adjustments, paying particular attention to the economic and price effects stemming from developments in the Middle East conflict.

Market focus now turns to Governor Kazuo Ueda’s press conference, where traders will be listening for any signals regarding the trajectory of rates in Japan. More hawkish language from policymakers could provide additional support to the JPY and weigh further on the AUD/JPY cross.

RBA Expectations and Australian Inflation in Focus

On the Australian side, investors are concentrating on the Reserve Bank of Australia’s (RBA) next move. The RBA is expected to raise the Official Cash Rate (OCR) for a third straight meeting at its policy gathering on May 5, 2026. According to Reuters, current market pricing reflects a 74% likelihood of a further 25-basis-point hike, which would take the OCR to 4.35%.

Before that meeting, the Australian March Consumer Price Index (CPI) report due on Wednesday is set to be a key driver for AUD/JPY. Consensus projections point to headline CPI rising 4.7% year-over-year in March, compared with 3.7% in February. Any upside surprise in the inflation print could bolster the Australian Dollar against the Yen.

Background: Bank of Japan and Policy Transmission to the Yen

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.