Aussie-Yen Slides as Soft CPI and BoJ Hawkish Tone Diverge

Key Moments

Persistent Selling Pushes AUD/JPY to Six-Month Low

The AUD/JPY pair remained under sustained downside pressure for a second consecutive session, dropping to a six-month trough during Asian trading on Wednesday. The decline followed the latest Australian consumer inflation release and left sellers eyeing a clear move below the 109.00 level as a potential trigger for additional downside positioning.

The move extended earlier weakness that emerged after the Reserve Bank of Australia’s latest decision, with the cross attracting strong selling interest amid a combination of domestic and Japanese policy signals.

Australian CPI Fails to Reinforce RBA Hawkish Narrative

Data from the Australian Bureau of Statistics showed that the headline Consumer Price Index increased 0.4% in August, easing from the 1% gain recorded in the prior month. On a yearly basis, inflation accelerated from 3.5% in July to 4%, while the Trimmed Mean CPI was unchanged at 3.6% year-on-year.

Despite the uptick in the annual headline measure, the overall report did little to revive expectations for another rate hike from the Reserve Bank of Australia. This came against the backdrop of a mildly dovish tone from Governor Bullock at the post-meeting press conference on Tuesday, which continued to weigh on the Australian Dollar and added to the downside in AUD/JPY.

China PMIs Overlooked as Yen Strengthens on Intervention and BoJ Bets

Market participants showed limited reaction to China’s official PMIs, even though the figures indicated that both manufacturing and services activity expanded in September. Australian Dollar buyers largely disregarded the data, leaving the currency vulnerable against the Yen.

In contrast, the Japanese Yen found support from renewed concerns over potential currency intervention and firmer expectations of further Bank of Japan tightening. Japan’s top currency official Atsushi Mimura and Finance Minister Satsuki Katayama cautioned markets to take joint US-Japan communications on foreign exchange depreciation seriously. Their comments followed US President Donald Trump’s expression of concern about the Yen’s weakness to Prime Minister Sanae Takaichi on the sidelines of the United Nations General Assembly.

BoJ Minutes Reinforce Expectations of Further Rate Increases

Additional support for the Yen came from the Minutes of the BoJ’s July monetary policy meeting, released on Monday. The Minutes showed that policymakers discussed the possibility of speeding up interest rate hikes amid growing worries over rising inflation risks.

These discussions strengthened market expectations that the BoJ could raise rates again as early as October or December. The resulting improvement in sentiment toward the JPY further reinforced the bearish bias in AUD/JPY and underpinned the case for continued downside in the cross.

Australian CPI Release Details

The Consumer Price Index, published monthly by the Australian Bureau of Statistics, tracks price changes for a broad basket of goods and services purchased by households. Following the adoption of a new methodology and the transition from quarterly to monthly reporting for data from April 2024 onward, it serves as the main gauge of headline inflation. The year-on-year figure compares prices in the reference month with the same month a year earlier. In general, a higher CPI reading is viewed as supportive for the Australian Dollar, while a lower one is typically considered negative.