AUD/JPY falls to near 98.00 after BoJ Ueda speech, Fed’s Powell waited

• AUD/JPY sheds gains as BoJ’s Ueda signaled no change in policy easing stance if future data aligns with forecasts.
• BoJ Governor Ueda said he is not considering selling long-term Japanese government bonds as a tool to adjust rates.
• Aussie gets support from improved risk aversion ahead of Fed Powell speech.

AUD/JPY is retracing recent gains of the past two days, trading around 97.80 in early European hours on Friday. The Japanese Yen (JPY) is strengthening following Bank of Japan (BoJ) Governor Kazuo Ueda’s speech to Parliament on Friday. Ueda said “the BoJ raised rates in July as the economy and inflation moved broadly in line with forecasts.”

BoJ Governor Ueda also indicated that there would be no change in the stance on adjusting monetary easing if the economy and inflation continue to align with forecasts. Ueda noted that the BoJ’s recent policy decisions were appropriate and warned that outlining the future policy path could lead to unnecessary speculation.

Ueda also stated that he “does not consider selling long-term Japanese government bonds (JGBs) as a tool to adjust interest rates.” He noted that any reduction in JGB purchases would only represent about 7-8% of the balance sheet, which is a relatively small drop. Ueda added that if the economy lines up with their projections, there could be a phase where they could adjust interest rates a bit more.

The downside to the AUD/JPY cross could be narrowed as the Australian dollar (AUD) gets support from improving risk sentiment ahead of US Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Jackson Hole Symposium scheduled for later Friday. Powell may provide a statement on the possibility of interest rate cuts in the United States (US), which is highly anticipated by market participants.

The Australian dollar could receive support from the dovish mood surrounding the Reserve Bank of Australia (RBA) on its policy outlook. RBA Governor Michele Bullock has expressed that the Australian central bank will not hesitate to raise interest rates again to combat inflation if necessary. Furthermore, the minutes of the RBA’s August meeting suggested that the cash rate could remain unchanged for an extended period.