AUD/JPY rises toward 98.50 due to RBA Bullock’s hawkish stance on the policy outlook

• AUD/JPY gains ground due to a hawkish mood surrounding the RBA’s policy trajectory.
• RBA’s Bullock expressed that the Australian central bank will not hesitate to raise rates again.
• The downside of the Japanese Yen would be limited as traders expect the BoJ to adopt a hawkish stance.

AUD/JPY edges higher to near 98.40 during the European hours on Tuesday, following hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) policy outlook. The RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed.

The recent RBA Minutes suggested that the board members had considered a rate hike earlier this month before ultimately deciding that maintaining current rates would better balance the risks. Additionally, RBA members agreed that a rate cut is unlikely soon. Traders await a Monthly Consumer Price Index on Wednesday that could influence the RBA policy outlook.

However, the upside of the AUD/JPY cross could be restrained due to the hawkish mood surrounding the Bank of Japan (BoJ). Additionally, the contrasting statements from the BoJ and the Federal Reserve (Fed) regarding their policy outlooks are contributing support for the Japanese Yen. BoJ Governor Kazuo Ueda stated in Parliament on Friday that the central bank could raise interest rates further if its economic projections are accurate.

BoJ Governor Ueda also addressed the Japanese parliament, stating that he is “not considering selling long-term Japanese government bonds (JGBs) as a tool for adjusting interest rates.” Ueda noted that any reduction in JGB purchases would only account for about 7-8% of the balance sheet, which is a relatively small decrease. He added that if the economy aligns with their projections, there could be a phase where they might adjust interest rates slightly further.

Japan’s Finance Minister Shunichi Suzuki noted on Tuesday that foreign exchange rates are shaped by a range of factors, including monetary policies, interest rate differentials, geopolitical risks, and market sentiment. He emphasized that predicting the impact of these factors on FX rates is challenging.