Australian Dollar strengthens against Japanese Yen following CPI data

AUD strengthens after Australia's July CPI hit 3.5% YoY, beating the 3.2% forecast despite easing from June's 3.8%.
Australia's July CPI rose 1.0% MoM, beating forecasts, while annual Trimmed Mean CPI increased 3.6%.
Japan's service-sector inflation reached 3.6% in July, reinforcing BoJ views that tight labor markets drive consumer price increases.

Akhtar Faruqui FXStreet

AUD/JPY gains ground for the second consecutive day, trading around 114.20 during the Asian hours on Wednesday. The currency cross remains stronger as the Australian Dollar (AUD) gains ground after the Consumer Price Index (CPI) climbed 3.5% year-over-year (YoY) in July, compared with 3.8% growth in June. The market forecast was a 3.2% print for the reported period.

Australia’s monthly Consumer Price Index rose 1.0% in July, up from a 0.1% decrease, beating the estimated 0.8% increase. Meanwhile, the Trimmed Mean CPI increased 0.5% MoM in July. Annually, the Trimmed Mean CPI advanced 3.6% YoY during the same period.

The AUD/JPY cross has appreciated as the Japanese Yen (JPY) faces challenges from Japan’s expansionary fiscal policy, high national debt, and a wide interest-rate differential with other major economies. However, potential losses for the Yen may be limited by growing expectations of further Bank of Japan tightening, with markets currently pricing in a rate hike next month.

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Underpinning these tightening expectations, fresh data released on Wednesday showed that a key gauge of Japan's service-sector inflation rose 3.6% year-over-year in July. This increase reinforces the central bank's perspective that a tight labor market is actively encouraging firms to pass rising operational costs on to consumers.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

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