Australian Dollar sticks to intraday gains as BoJ's on-hold decision keeps Yen pressured

The AUD/JPY cross builds on the previous day's goodish rebound from sub-111.00 levels, or the lowest since April 7, and gains strong positive traction during the Asian session on Friday. Spot prices stick to intraday gains near the 113.00 mark after the Bank of Japan (BoJ) announced its decision and, for now, seem to have snapped a three-day losing streak.

As was widely expected, the BoJ left the short-term interest rate unadjusted at 1.00% following the conclusion of the July policy review meeting. Moreover, the central bank revised its real GDP forecast for fiscal 2026 to +0.6% vs +0.5% prior, while trimming the FY2026 core CPI estimates to +2.5% from +2.8% in April. The BoJ flagged the Middle East conflict as something it must watch closely for economic and price spillovers, which continues to undermine the Japanese Yen (JPY).

Meanwhile, borrowing costs in Japan remain significantly lower compared to other major economies, including Australia. The wide interest rate differential, in turn, keeps the so-called JPY carry trade active, which is seen as another factor lending some support to the AUD/JPY cross. The intraday move up seems unaffected by China's disappointing official PMIs, with bulls looking past a suspected official intervention by Japan on Thursday to prop up the domestic currency.

Nevertheless, spot prices remains on track to register losses for the first time in five weeks, though the fundamental backdrop backs the case for a further intraday appreciating move. The market focus now shifts to the Reserve Bank of Australia (RBA) policy meeting on August 11. Heading into the key central bank event risk, diminishing odds for an immediate interest rate hike by the RBA might hold back bullish traders from placing fresh bets on the AUD/JPY cross.

Analysts at Deutsche Bank highlight that the latest inflation print has taken some of the heat out of the case for further policy tightening by the RBA. They note that annual core inflation "edged up from +3.5% to +3.6%, but remained below the consensus estimate of +3.7%, reducing the urgency for additional interest rate hikes after the RBA already raised rates three times this year." In their view, the combination of only a marginal uptick in core prices and a miss versus expectations reinforces the sense that the central bank can afford to pause after an already aggressive tightening cycle.