AUD/JPY holds positive ground above 98.00 despite BoJ rate hike
- AUD/JPY trades in positive territory around 98.20 in Friday’s Asian session, up 0.22% on the day.
- BoJ hiked the interest rate to 0.50% in the January meeting, as expected.
- Trump said he would rather not use tariffs against China.
The AUD/JPY cross remains firm near 98.20 during the Asian trading hours on Friday. However, the upside of the cross might be limited amid the stronger Japanese Yen (JPY) after the Bank of Japan's (BoJ) interest rate decision.
As widely expected, the BoJ decided to hike the short-term rate target by 25 basis points (bps) from 0.15%- 0.25% to 0.40%- 0.50% at its January meeting on Friday. The Japanese central bank raised the interest rate to its highest level since 2008 after having held steady for three straight meetings. The JPY pares losses in an immediate reaction to the BoJ rate decision.
Data released by the Japan Statistics Bureau on Friday showed that the country’s National Consumer Price Index (CPI) climbed 3.6% YoY in December, compared to 2.9% in the previous reading.
Furthermore, the National CPI ex Fresh food came in at 3.0% YoY in December versus 2.7% prior, in line with the market consensus of 3.0%. Finally, CPI ex Fresh Food, Energy rose 2.4% YoY in December, compared to the previous reading of 2.4% (revised from 2.7%).
On the other hand, US President Donald Trump said Friday that he would rather not use tariffs against China but called tariffs a "tremendous power." This positive development could provide some support to the China-proxy Aussie, as China is a major trading partner to Australia.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.