AUD/JPY falls toward 93.00 due to hawkish sentiment surrounding the BoJ’s policy outlook

• AUD/JPY declines as the Japanese Yen stays strong amid expectations of further interest rate hikes by the BoJ.
• Japan’s Atsushi Mimura noted that both large corporations and small to medium-sized businesses anticipate significant wage increases.
• The Australian Dollar found support following the release of Australia’s TD-MI Inflation Gauge and stronger-than-expected China Manufacturing PMI data.

AUD/JPY depreciates to near 93.00 during European hours on Monday. The currency cross weakens as the Japanese Yen (JPY) remains firm amid expectations that the Bank of Japan (BoJ) will continue raising interest rates. This sentiment is reinforced by a rise in Japan’s 10-year government bond yield, which increased by 3 basis points to 1.4%.

Japan’s Vice Finance Minister for International Affairs, Atsushi Mimura, stated on Monday that not only large firms but also small and medium-sized businesses anticipate strong wage hikes. Despite this, real private consumption in Japan remains below pre-Covid levels, though corporate investment and inbound tourism continue to show strength.

Last week, BoJ Governor Kazuo Ueda cautioned that uncertainty surrounding US President Donald Trump’s potential tariff policies could impact the global economic outlook, requiring careful monetary policy adjustments.

Meanwhile, the Australian Dollar (AUD) found support from positive Chinese economic data. China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) rose to 50.8 in February from 50.1 in January, surpassing market expectations of 50.3. Given China’s importance as a key trading partner, this boost in manufacturing activity supported the AUD.

In Australia, TD-MI Inflation Gauge declined by 0.2% month-over-month in February, reversing a 0.1% increase in January. This marked the first drop since last August and followed the Reserve Bank of Australia’s (RBA) decision to cut its cash rate by 25 basis points to 4.1% in its first monetary policy meeting of the year, signaling continued easing in inflation. However, on an annual basis, inflation rose by 2.2%, slightly lower than the previous 2.3% increase.