The Australian Dollar (AUD) stabilized around 109.50 against the Japanese Yen (JPY) during the European trading session on Friday, following an initial recovery from early losses. This movement came after the release of hotter-than-expected Tokyo Consumer Price Index (CPI) data for September, which saw Tokyo CPI excluding Fresh Food rise to 2.7% year-on-year from 1.8% in August, surpassing the forecast of 2.4%. Additionally, Tokyo CPI excluding Food and Energy accelerated to 3% year-on-year from the previous 2% reading, indicating a significant uptick in underlying inflation pressures in Japan [1].
The stronger inflation data is likely to reinforce expectations for a more hawkish stance from the Bank of Japan (BoJ). The BoJ's Summary of Opinions from the September meeting, released on Thursday, revealed that several policymakers support further interest rate hikes. One member stated it would be appropriate to keep raising rates in line with economic, price, and financial developments. Some officials advocated for accelerating the monetary-tightening cycle to contain inflation and demonstrate the BoJ’s commitment to price stability. Another member emphasized the need for the BoJ to act nimbly, show market determination to prevent inflation overshoot, and consider the impact on the foreign exchange market [1].
However, there were also calls for caution from government representatives at the BoJ board, who urged the central bank to reassess its monetary policy targets and carefully evaluate the cumulative impact of previous rate increases. The Cabinet Office representative stressed the importance of upholding accountability and a careful assessment of policy effects [1].
On the Australian side, investors are awaiting further signals on whether the Reserve Bank of Australia (RBA) will raise interest rates again this year, after four 25 basis point hikes that brought the Official Cash Rate to 4.6%. RBA Governor Michele Bullock stated at a recent monetary policy press conference that the central bank would not hesitate to raise rates further if necessary to bring inflation down [1].
CONCLUSION
The AUD/JPY pair remained flat despite hotter-than-expected Tokyo inflation data and growing expectations for a more hawkish Bank of Japan. While the BoJ signaled potential for further tightening, the RBA also left the door open for additional rate hikes. Market participants are closely monitoring both central banks for future policy direction.