AUD/JPY rises to 98.50 on RBA Bullock’s dovish stance on policy outlook

• AUD/JPY is gaining ground on a mood of sorts surrounding the path of RBA policy.
• The RBA’s Bullock said the Australian central bank would not hesitate to raise rates again.
• The Japanese yen’s downside would be limited as traders expect the BoJ to adopt a variety stance.

AUD/JPY climbs to near 98.40 during European hours on Tuesday as driver sentiment around the Reserve Bank of Australia’s (RBA) policy outlook. RBA Governor Michele Bullock said the Australian central bank would not hesitate to raise interest rates again to fight inflation if needed.

Recent RBA minutes suggested that board members considered a rate hike earlier this month before ultimately deciding that keeping rates current would better balance risks. Furthermore, RBA members agreed that a rate cut was unlikely anytime soon. Traders await a monthly consumer price index on Wednesday that could influence the RBA’s policy outlook.

However, the upside of the AUD/JPY cross could be narrowed due to the mood surrounding the Bank of Japan (BoJ). In addition, contrasting statements by the BoJ and the Federal Reserve (Fed) on their policy outlooks are helping support the Japanese yen. BoJ Governor Kazuo Ueda told Parliament on Friday that the central bank could raise interest rates further if its economic forecasts are correct.

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

Japan’s Finance Minister Shunichi Suzuki noted on Tuesday that foreign exchange rates are influenced by a number of factors, including monetary policies, interest rate differentials, geopolitical risks and market sentiment. He pointed out that predicting the impact of these factors on exchange rates is challenging.