AUD/JPY pares gains near 94.50 as BOJ holds rates steady

AUD/JPY trims part of intraday gain near 163.45 in Tuesday’s Asian session.
The BoJ left policy settings unchanged at its June meeting on Tuesday.
China’s May Retail Sales grew at the fastest pace since December 2023.

Lallalit Srijandorn FXStreet

The AUD/JPY cross trims gains near 94.50 during the Asian trading hours on Tuesday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) after the Bank of Japan (BoJ) interest rate decision. Investors will closely monitor the BoJ Press Conference later on Tuesday.

The BoJ decided to keep the short-term interest rate target unchanged in the range of 0.40%- 0.50% at its June meeting on Tuesday. The decision aligned with the market expectations. The JPY trades higher in an immediate reaction to the rate decision. The Japanese central bank extended the pause in its rate-hiking cycle into the third consecutive policy meeting in a row after delivering a 25 basis points (bps) hike in January.

Additionally, the BoJ plans to reduce the pace at which it trims monthly bond purchases from the next fiscal year to quarterly reductions of ¥200 billion ($1.34 billion) from the current ¥400 billion.

A stronger-than-expected China’s Retail Sale provides some support to the China-proxy Aussie, as China is a major trading partner of Australia. China’s Retail Sales in May grew at their fastest rate since late 2023, the National Bureau of Statistics (NBS) showed Monday. The country’s Retail Sales rose 6.4% YoY in May versus 5.1% in April, stronger than the 5.0% expected.

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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