The AUD/JPY currency pair has retraced its recent gains, trading around 97.80 during early European trading on Friday. The Japanese Yen (JPY) gained strength following a speech by Bank of Japan (BoJ) Governor Kazuo Ueda in Parliament, where he affirmed that the BoJ’s rate hike in July was in line with economic and inflation forecasts.
Governor Ueda indicated that the BoJ’s stance on monetary easing would remain unchanged if economic conditions and inflation continue to meet expectations. He noted that recent BoJ policy decisions were appropriate and cautioned against detailed predictions of future policy moves to avoid undue speculation.
Ueda also clarified that the BoJ is “not considering selling long-term Japanese government bonds (JGBs)” as a means of adjusting interest rates. He mentioned that any potential reduction in JGB purchases would represent only about 7-8% of the BoJ’s balance sheet, a relatively minor adjustment. Ueda suggested that if economic conditions align with forecasts, there might be a possibility of slight further rate adjustments.
On the other hand, the Australian Dollar (AUD) is receiving support from improved risk sentiment ahead of US Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium later on Friday. Powell’s anticipated comments on the potential for US interest rate cuts could impact market expectations.
Additionally, the Australian Dollar benefits from a hawkish outlook from the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock emphasized that the central bank is prepared to raise rates again if necessary to tackle inflation. RBA’s August Meeting Minutes also indicated that the cash rate may remain unchanged for an extended period, further supporting the AUD.
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