Ella 
AUD/JPY attracted some buying for the second day in a row on Tuesday and is still trading around the one-and-a-half-week top of 97.85 hit the previous day. Spot prices are currently trading around 97.15-97.20, up nearly 0.25% on the day, and are finding support from a variety of factors.
The Australian dollar continued to be supported by the Reserve Bank of Australia’s (RBA) hawkish stance, which said it was prepared to further raise interest rates to combat still-tough inflation. Indeed, Reserve Bank of Australia Governor Michele Bullock last week emphasized the need to remain vigilant about inflation risks and said the central bank would not hesitate to tighten monetary policy again if necessary. This, coupled with the modest decline in the yen, has been a key factor in favoring AUD/JPY.
Former Bank of Japan (BoJ) board member Makoto Sakurai said on Monday that the Bank of Japan will not be able to raise interest rates again in 2024 and predicted a rate hike in March 2025. This follows recent dovish remarks by Shinichi Uchida, deputy governor of the Bank of Japan, stating that the central bank will not raise interest rates when markets are unstable. In addition, optimistic market sentiment suppressed safe-haven demand for the Japanese yen (JPY), favoring the risk-sensitive currency Australian dollar, providing additional support for the Australian dollar/yen.
Still, geopolitical risks posed by ongoing conflicts in the Middle East and the protracted Russia-Ukraine war will dampen market optimism. In addition, a summary of the opinions of the Bank of Japan’s July policy meeting released last week showed that some members believe there is room for further interest rate hikes and policy normalization, which should help limit further declines in the yen and curb the rise of the AUD/JPY. Caution should be exercised before betting on further gains in this cross.
