AUD/JPY dips below 96.50 on dovish sentiment around the BoJ

• AUD/JPY is lower as real wage growth supports expectations of further BoJ interest rate hikes before the end of 2024.
• The BoJ’s Takata said “if the economy and prices move as expected, we will adjust the policy rate in several stages.”
• RBA Governor Michele Bullock said it was too early to consider cutting rates.

AUD/JPY is retracing recent gains from the previous session, trading around 96.30 during Asian hours on Friday. The Japanese yen (JPY) is rising against the Australian dollar (AUD) as rising real wages in July fuel speculation that the Bank of Japan (BoJ) could introduce another interest rate hike before the end of 2024.

Japanese labor cash earnings rose 3.6 percent from a year earlier, a slowdown from June’s 4.5 percent rise but the biggest since January 1997, beating market expectations of 3.1 percent .

The Japanese yen also received support from hawkish remarks from Bank of Japan (BoJ) Governing Council member Hajime Takata on Thursday. Takata said that “if the economy and prices move in line with our forecast, we will adjust the policy rate in several stages.”

The BoJ’s Takata also pointed out that the domestic economy is recovering moderately, despite some signs of weakness. Although stock and currency markets have faced considerable volatility, Takata stressed that the BoJ remains optimistic about achieving its inflation target.

The AUD/JPY cross appreciated as the Aussie received support from positive trade balance data released on Thursday. Australia’s trade surplus widened to 6.009 million on the month in July, beating expectations of 5.150 million and 5.589 million in the previous reading.

In addition, Reserve Bank of Australia (RBA) Governor Michele Bullock spoke at the “Anika Foundation” in Sydney about the “Costs of High Inflation”, saying it was too early to consider rate cuts. The board does not currently anticipate being able to lower rates in the near term.