AUD/JPY breaks below 96.50 due to hawkish sentiment surrounding the BoJ

• AUD/JPY edges lower as rising real wages bolster expectations of further BoJ rate hikes before the end of 2024.
• BoJ’s Takata stated that “if the economy and prices move as expected, we will adjust the policy rate in several stages.”
• RBA Governor Michele Bullock stated that it is too early to consider rate cuts.

AUD/JPY retraces its recent gains from the previous session, trading around 96.30 during the Asian hours on Friday. The Japanese Yen (JPY) edges higher against the Australian Dollar (AUD) as rising real wages in July fuel speculation that the Bank of Japan (BoJ) may introduce another interest rate hike before the end of 2024.

Japan’s Labor Cash Earnings grew by 3.6% year-on-year, a deceleration from June’s 4.5% increase but the highest since January 1997, surpassing market expectations of 3.1%.

The Japanese Yen also received support from the hawkish remarks from the Bank of Japan (BoJ) Board Member Hajime Takata on Thursday. Takata stated that “if the economy and prices move in line with our forecast, we will adjust the policy rate in several stages.”

BoJ’s Takata also highlighted that the domestic economy is recovering moderately despite some signs of weakness. Although stock and FX markets have faced considerable volatility, Takata emphasized that the BoJ remains optimistic about achieving its inflation target.

The AUD/JPY cross appreciated as the Aussie Dollar received support from the positive Trade Balance data released on Thursday. Australia’s trade surplus widened to 6,009 million MoM in July, exceeding the expected 5,150 million and 5,589 million in the previous reading.

Additionally, the Reserve Bank of Australia (RBA) Governor Michele Bullock spoke at “The Anika Foundation” in Sydney on “The Costs of High Inflation,” stating that it is too early to consider rate cuts. Currently, the board does not anticipate being able to reduce rates in the near term.