AUD/JPY aims 89.00 as BoJ to continue ultra-dovish interest rate policy

• AUD/JPY is aiming to reclaim 89.00 as a continuation of expansionary monetary policy by the BoJ is widely anticipated.
• The requirement of keeping Japan’s inflation rate steadily above 2% an ultra-dovish policy is highly required.
• Consistently declining Australian inflation will allow the RBA to keep interest rates steady.

The AUD/JPY pair is approaching the 89.00 hurdle on expectations that the Bank of Japan (BoJ) will continue its ultra-dovish policy stance on interest rates. The cross has climbed above 88.85 after a breakout of a base formation in an 87.87-88.75 range for the past two trading sessions.

Considering the fact that the Japanese economy has already passed on the impact of higher import prices and domestic demand is vulnerable, BoJ Governor Kazuo Ueda has no other option than to keep interest rates unchanged. The Japanese economy has yet not reached its pre-pandemic levels. The administration is making enormous efforts to propel wages to accelerate households’ spending. However, a failure in doing so is going to force the BoJ to continue an expansionary monetary policy.

On Yield Curve Control (YCC) band, analysts at TD Securities expect, “While we think Ueda's next move will be a further adjustment of the yield curve target band, he appears in no rush to make such an adjustment, saying it's appropriate to maintain YCC "for now"

On the Australian Dollar front, investors are awaiting the interest rate decision by the Reserve Bank of Australia (RBA), which will be announced on Tuesday. An unchanged monetary policy is widely anticipated from RBA Governor Philip Lowe as Australian inflation is consistently declining for the past three months. RBA would prefer some time to observe the influence of current monetary policy but will keep doors open for further rate hikes if inflation continues to remain persistent.