The AUD/JPY exchange rate faces potential challenges due to contrasting monetary policies from central banks. The Australian Dollar is currently under pressure from heightened expectations that the Reserve Bank of Australia (RBA) may begin cutting interest rates as early as next month. This trend towards a more dovish policy comes amid recent signs of weakening core inflation, which has fallen to its lowest level since late 2021, edging towards the RBA’s targeted inflation range of 2% to 3%. The forthcoming quarterly inflation report from Australia could provide crucial insights into the RBA’s future monetary policy direction.
Despite recent efforts by China to stimulate its economy, the Australian Dollar has struggled to find support. China’s Securities Regulatory Commission has introduced a new round of long-term stock investment initiatives worth 52 billion Yuan (approximately $7.25 billion) aimed at revitalizing its sluggish equity market. Given the strong trade relations between Australia and China, changes in China’s economic landscape have a notable impact on Australia’s economic health.
On the other side of the currency pair, the Japanese Yen is poised to strengthen as expectations grow that the Bank of Japan (BoJ) will continue to pursue interest rate hikes. Recently, the BoJ reiterated its readiness to adjust its monetary policy if the economic outlook presented during the January meeting unfolds as anticipated. Additionally, the central bank announced a JPY 200 billion purchase of commercial paper and reiterated its provision of USD funding secured by pooled collateral. With these developments, market participants will pay close attention to any updates from Japanese officials, as shifts in Japan’s economic policy could significantly influence the AUD/JPY exchange rate.
