The AUD/JPY currency pair remains relatively stable after recent losses, trading around 98.00 during the early European hours on Friday. The Australian Dollar (AUD) may experience upward momentum, as the Japanese Yen (JPY) weakens due to ongoing uncertainty over the Bank of Japan‘s (BoJ) interest rate hike timeline.
Japan’s Economy Minister, Ryosei Akazawa, addressed the nation’s economic challenges on Friday, describing the country as being at a “critical stage” in overcoming the public’s deflationary mindset. He added that Japan could cease using deflation-fighting measures once it is able to officially declare the end of deflation.
Despite these remarks, any potential upside for the AUD/JPY cross could be limited by domestic headwinds facing the Australian Dollar. The ANZ bank recently forecast a 25 basis point (bps) rate cut by the Reserve Bank of Australia (RBA) in February, signaling concerns over the country’s economic outlook.
The Australian Dollar has been under pressure as Australia’s trimmed mean inflation, a closely watched measure of core inflation, dropped to 3.2% year-over-year from 3.5%, inching closer to the RBA’s target range of 2% to 3%. While markets remain divided on the RBA’s potential action in February, a quarter-point rate cut in April is widely anticipated.
The Aussie Dollar also faces external pressure from China’s latest inflation data, which shows increasing deflationary risks. China’s Consumer Price Index (CPI) rose by just 0.1% year-over-year in December, falling short of November’s 0.2% increase. Monthly inflation in China was flat in December, further contributing to deflation concerns. Given Australia’s close economic ties with China, any shifts in China’s economic conditions are likely to have a significant impact on the Australian market.
As the markets digest these mixed economic signals, the outlook for AUD/JPY remains uncertain, with both domestic and global factors influencing the currency pair’s performance.
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