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The AUD/JPY pair has recovered from losses over the past two sessions and was trading around 101.20 during early European trading on Monday. The rise in AUD/JPY may be linked to growing uncertainty surrounding the Bank of Japan’s (BoJ) interest rate hike plans, now exacerbated by the loss of the Japanese ruling coalition’s parliamentary majority.
Japan’s long-standing ruling coalition lost its lower house majority in elections on Sunday for the first time since 2009, casting doubt on the Bank of Japan’s ability to raise interest rates further. The Liberal Democratic Party and its coalition partner Komeito won only 215 of the 465 seats in the lower house, falling short of the 233-seat majority threshold. Meanwhile, the main opposition Constitutional Democratic Party of Japan (CDPJ) increased its seats from 98 to 148 seats.
The Australian dollar (AUD) found support after hawkish comments from the Reserve Bank of Australia (RBA). The Reserve Bank of Australia stressed that the current cash rate of 4.35% is sufficient to limit inflation to the target range of 2%-3% while maintaining employment levels, so a rate cut is unlikely in the near future.
Last week, RBA deputy governor Andrew Hauser highlighted Australia’s strong labor force participation rate and clarified that while the RBA relies on data, it avoids overreliance on specific data. Traders remained cautious as they awaited key domestic inflation data due on Wednesday, which could influence the RBA’s future monetary policy stance.
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