Ella 
AUD/JPY fell to its lowest level since April 19 following the Bank of Japan’s policy decision on Wednesday, validating a break through the 200-day simple moving average (SMA) during the Asian session. However, the spot price has successfully rebounded by more than 100 points in the past hour, but lacks follow-up momentum and is still below the 100.00 psychological mark.
The Japanese yen (JPY) strengthened across the board after the Bank of Japan unexpectedly raised interest rates by 15 basis points (bps) at the end of its two-day policy meeting on Wednesday. The Australian dollar (AUD), on the other hand, was hurt by mixed domestic data and sent AUD/JPY sharply lower during the session. In fact, the Australian Bureau of Statistics (ABS) reported that the headline consumer price index (CPI) rose by 1.0% in the second quarter of 2024, accelerating to an annual rate of 3.8%, both in line with consensus expectations.
Nonetheless, the Reserve Bank of Australia’s (RBA) deflated average consumer price index (CPI) came in at 0.8% quarterly and 3.9% annually, below market expectations. Still, the data forced investors to scale back bets on further rate hikes by the Reserve Bank of Australia, which, coupled with lackluster macro data from China, weighed heavily on the Australian dollar (AUD). Other data released on Wednesday showed that Australia’s retail sales increased by 0.5% month-on-month in June and 0.6% in May. It was expected to grow by 0.2%.
Meanwhile, China’s official manufacturing purchasing managers’ index (PMI) remained in contraction territory for the third consecutive month, falling slightly from 49.5 to 49.4 in July. Elsewhere, the National Bureau of Statistics’ non-manufacturing purchasing managers’ index fell to 50.2 from 50.5 in June, in line with expectations. The data did little to ease concerns about a slowdown in the world’s second-largest economy and provided no momentum for China’s proxy currency, the Australian dollar. Nonetheless, some selling around the Japanese yen (JPY) helped limit further downside for AUD/JPY.
However, the Bank of Japan’s hawkish outlook favors yen bulls and suggests downside resistance to spot prices remains minimal. The Bank of Japan pointed out in its monetary policy statement that the underlying inflation rate is expected to gradually rise and the economy is recovering moderately. The Bank of Japan added that if the outlook for economic activity and prices holds true, it will continue to raise policy rates and adjust monetary easing accordingly. Therefore, caution is needed before confirming a bottom in AUD/JPY.
