Aussie Dollar Rises as BoJ Hikes Rates While RBA Holds

Key Moments

BOJ Decision Lifts AUD/JPY as Yen Slips

The Australian Dollar strengthened against the Japanese Yen in Friday’s Asian trading, with AUD/JPY advancing to around 112.05, up 1.05% on the session. The move follows the latest Bank of Japan (BoJ) policy announcement, which prompted selling pressure in the Yen against the Australian Dollar.

Market participants are now focused on BoJ Governor Kazuo Ueda’s press conference at 06:30 GMT for additional guidance on how quickly and how far the central bank may continue to raise rates.

BOJ Hikes to 1.25% but Fails to Impress Yen Bulls

As anticipated, the BoJ raised its short-term policy rate by 25 basis points to 1.25% from 1.00% at its September meeting on Friday, taking rates to a 31-year high. The decision passed with a 7-2 majority, with board members Toichiro Asada and Ayano Sato voting against the move.

The central bank emphasized that it needs to remain alert to several risks, highlighting developments in the Middle East, shifts in AI-related demand, foreign exchange volatility, and their combined impact on economic activity and prices. Policymakers also flagged that underlying inflation could potentially exceed the 2% target.

Despite the rate increase, the Yen weakened immediately after the announcement, suggesting that investors viewed the outcome as less hawkish than they had hoped. Governor Ueda’s upcoming remarks will be scrutinized for any indication of whether another rate hike could support a renewed Yen recovery.

RBA Holds at 4.35% as Markets Eye Further Tightening

On the Australian side, the Reserve Bank of Australia has left the Official Cash Rate at 4.35%, following three consecutive increases earlier this year. According to RBA Rate Tracker, markets are now assigning almost 76% probability that the RBA will raise the OCR to 4.60% at its next Board meeting.

Early Friday, RBA Governor Michele Bullock noted that risks to the outlook had been tilted to the upside at the August Board meeting. Deputy Governor Andrew Hauser added that the Board remained fully committed to achieving its inflation target.

Danske Bank Sees Scope for More Flexible BOJ Guidance

Analysts at Danske Bank expect the BoJ to recalibrate its policy messaging, arguing that the institution is likely to “signal a nimbler approach to the tightening pace than the very cautious hiking cycle we have witnessed so far.” They caution that if the BoJ instead signals an intention to maintain its earlier, very gradual approach, it could weigh on the Yen, as “anything else will weigh heavy on the yen.”

BOJ Highlights Inflation Overshoot Risks as Yen Weakness Lifts Prices

FXS Speechtracker shows the speech score at 8.2, matching the speaker’s historical average, while characterizing the tone as clearly more hawkish as the BoJ underscores that underlying inflation is nearing 2% and may overshoot that level. The central bank’s pledge to “continue to raise interest rates” while keeping financial conditions accommodative points to a measured normalization path that still supports growth but reflects greater determination to counter lasting price pressures and rising inflation expectations.

The BoJ’s focus on the influence of Middle East developments, AI-driven demand, and recent Yen depreciation on both wholesale and consumer prices signals growing unease that imported and cost-based pressures could keep inflation above target. The combination of watchfulness over external shocks and recognition that companies are passing higher wages through to prices reinforces a hawkish tilt, bolstering a stronger-Yen narrative as markets factor in a more sustained BoJ tightening cycle.

Technical View: AUD/JPY Held Below 100-Day Moving Average

From a technical perspective on the daily chart, AUD/JPY maintains a bearish short-term bias as it trades under both the 20-period Bollinger middle band and the 100-day simple moving average. The cross also remains comfortably beneath the upper Bollinger band, indicating that upside attempts are constrained, while the 14-day Relative Strength Index hovering around 50 suggests neutral momentum rather than a robust recovery.

On the topside, the first resistance zone aligns with the 20-period Bollinger middle band at 112.35, followed by the 100-day moving average at 112.90, and a more substantial barrier near the upper Bollinger band at around 115.70. On the downside, the lower Bollinger band near 109.05 stands out as the next notable support, where sellers may reassess positions if the pair’s pullback deepens.