Key Moments
- AUD/JPY trades near 113.65 in early European hours on Thursday, leaving the pair about 0.65% lower for the week.
- Australia’s June headline CPI eased to 3.8% YoY, below both May’s 4.0% and market expectations of 4.0%, sharply reducing near-term RBA hike bets.
- The Bank of Japan is widely anticipated to hold its key rate at 1.0% on Friday, with markets watching for signals on future tightening.
Cross Weakens as Market Reassesses RBA Path
The AUD/JPY cross is posting modest losses around 113.65 in early European trade on Thursday. The pair is currently down about 0.65% for the week as traders scale back expectations that the Reserve Bank of Australia (RBA) will deliver another interest rate increase. Market participants are now focused on Japan’s upcoming Tokyo Consumer Price Index (CPI) data and the Bank of Japan (BoJ) policy decision scheduled for Friday.
Fresh inflation figures out of Australia have been a key driver of the move. Data from the Australian Bureau of Statistics on Wednesday showed headline CPI rising 3.8% year-on-year in June, down from 4.0% in May and below consensus estimates of 4.0%. The softer print has undermined the case for imminent RBA tightening and has weighed on the Australian Dollar.
According to Reuters, market-implied odds of an RBA rate hike in August dropped markedly after the release, falling from nearly 21% to about 3% to 4%. The repricing reflects growing confidence that the central bank may have more room to wait before considering any additional policy tightening.
BoJ Seen on Hold but Maintaining Hawkish Tone
On the Japanese side, the BoJ is widely expected to keep its benchmark interest rate unchanged at 1.0% at its July meeting on Friday, following a hike in June that took the rate to a 31-year high. Despite the anticipated pause, policymakers are signaling a relatively hawkish stance, with concerns centered on the weak Japanese Yen and higher import costs.
Investors will pay close attention to the BoJ’s quarterly outlook report and Governor Kazuo Ueda’s press conference for potential guidance on the timing of future rate increases. Analysts surveyed by Reuters expect the BoJ to raise rates to 1.25% by the end of December, with some seeing the possibility of a move as early as October.
| Event / Metric | Latest Reading / Expectation | Prior / Reference | Market Implication |
|---|---|---|---|
| AUD/JPY spot | Around 113.65 (early Thursday, Europe) | – | Pair down about 0.65% on the week |
| Australia headline CPI (June, YoY) | 3.8% | 4.0% in May; 4.0% expected | Reduced expectations for near-term RBA rate hike |
| Market-implied RBA August hike odds | About 3% – 4% | Nearly 21% before CPI data | Significant repricing lower after inflation report |
| BoJ policy rate (current) | 1.0% | Raised in June to 31-year high | BoJ widely expected to hold at July meeting |
| Analyst expectation for BoJ rate by end-December | 1.25% | – | Potential additional hike, possibly as early as October |
RBA Seen More Comfortable After Softer Core Inflation
TD Securities suggests that the downside surprise in Australia’s inflation data should alleviate near-term policy pressures on the RBA. The firm notes that “Australia Q2/June CPI was lower than expected, which should reassure RBA officials that inflation pressures are kept in check.” Strategists also point to a weaker core reading, emphasizing that the “Q2 trimmed mean measure (i.e., core), which the RBA focuses on, [having] printed at 3.6% y/y and lower than the RBA’s May Statement of Monetary Policy forecast at 3.8% y/y.” Together, the headline and core results support the view that underlying price pressures are easing relative to the central bank’s earlier projections.
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