AUD/JPY Climbs to 112.10 as RBA and BoJ Paths Diverge

Key Moments

AUD/JPY trades around 112.10, up 0.32%, as markets position for a potential RBA rate hike next week.
The RBA has lifted its Official Cash Rate by 75 bps this year to 4.35%, while the BoJ just raised its policy rate to 1.25%.
AUD strength is supported by expectations of tighter RBA policy and uncertainty over the BoJ’s pace of further normalization.

Policy Divergence Lifts AUD/JPY

AUD/JPY advances on Monday, trading near 112.10 at the time of writing, a gain of 0.32% on the day. The Australian Dollar (AUD) is drawing support from rising expectations that the Reserve Bank of Australia (RBA) will deliver another interest rate increase, while the Japanese Yen (JPY) remains under pressure after cautious signals from the Bank of Japan (BoJ).

Market participants are increasingly convinced the RBA will raise rates again at its monetary policy meeting next week. The central bank has already lifted its Official Cash Rate (OCR) by 75 basis points this year to 4.35%, as persistent inflation keeps policymakers on alert.

RBA Communication and Upcoming Data

RBA Governor Michele Bullock reinforced the case for further tightening last week during testimony to the Parliamentary Treasury Committee. Bullock cautioned that inflation risks are still skewed to the upside and emphasized that the key issue is whether the policy moves delivered so far will be enough to bring inflation back to target within an acceptable period.

Bullock is scheduled to speak again on Tuesday at a fireside chat in Sydney. Investors will scrutinize her remarks for any additional guidance on next week’s policy decision and the likelihood of more tightening. Attention will then shift to Australia’s labor market data on Thursday. Evidence of continued strength in employment could bolster expectations for further RBA action and extend support for the Australian Dollar.

External Factors: US-China Trade Developments

External developments may also shape AUD performance. United States (US) President Donald Trump and Chinese President Xi Jinping are expected to meet in Washington on Thursday to discuss the US-China tariff truce. Progress on trade relations with China remains particularly important for the Australian Dollar due to the close economic links between Australia and China.

BoJ’s Careful Approach Limits Yen Support

On the Japanese side, the Yen continues to struggle following the BoJ’s monetary policy decision on Friday. The central bank raised its policy rate by 25 bps to 1.25%, marking the highest level in 31 years, and BoJ Governor Kazuo Ueda indicated that further increases remain possible if economic conditions and price developments unfold as anticipated.

However, two members of the BoJ policy board argued for more patience before implementing additional rate hikes. These differing views are generating uncertainty about how quickly the BoJ will proceed with policy normalization, tempering support for the Japanese Yen for now.

The contrast between solid expectations of further tightening in Australia and a more measured stance in Japan is sharpening the perception of policy divergence between the two central banks, underpinning AUD/JPY at the start of the week.

Australian Dollar Performance Against Major Currencies

The table below summarizes the percentage change of the Australian Dollar versus major peers today, highlighting that the AUD has shown its strongest performance against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.01%	0.07%	0.20%	0.22%	-0.06%	-0.09%	0.10%
EUR	-0.01%		-0.00%	0.16%	0.13%	-0.13%	-0.20%	0.03%
GBP	-0.07%	0.00%		0.15%	0.17%	-0.12%	-0.19%	0.05%
JPY	-0.20%	-0.16%	-0.15%		-0.01%	-0.32%	-0.30%	-0.08%
CAD	-0.22%	-0.13%	-0.17%	0.00%		-0.31%	-0.31%	-0.09%
AUD	0.06%	0.13%	0.12%	0.32%	0.31%		-0.02%	0.19%
NZD	0.09%	0.20%	0.19%	0.30%	0.31%	0.02%		0.21%
CHF	-0.10%	-0.03%	-0.05%	0.08%	0.09%	-0.19%	-0.21%

The heat map indicates percentage changes of major currencies relative to each other. The base currency is taken from the left column, and the quote currency from the top row. For instance, selecting the Australian Dollar on the left and moving across to the US Dollar shows the percentage change for AUD (base)/USD (quote).