AUD/JPY looks vulnerable around 91.50 ahead of BoJ Ueda’s speech

• AUD/JPY has sensed some buying near 91.50 as Japan’s headline National CPI has missed the consensus.
• Economists at Nordea see normalization in expansionary BoJ policy as inflation at highest in decades.
• The speech from BoJ Governor nominee Kazuo Ueda will be keenly watched.

The AUD/JPY pair has observed some interest after a loss in the downside momentum around 91.50 in the Asian session, however, the downside looks favored. The risk barometer hogged the limelight after Japan’s National Consumer Price Index (CPI) data missed expectations. The headline CPI has landed at 4.3% lower than the consensus of 4.5% but higher than the former release of 4.0%. While the core CPI that excludes oil and food prices has matched expectations at 3.2%.

It is clearly visible that there is a gradual improvement in Japan’s inflation, which is infusing strength in the Japanese Yen and making it more competitive against rival currencies. This might allow some room for the Bank of Japan (BoJ) to widen the yields bracket for Japanese Government Bonds (JGBs). The BoJ has already widened the Yield Conversion Control (YCC) to 0.5% and the street is expecting more room for movement to keep inflation rising ahead.

Later on Friday, the speech from BoJ Nominee Governor Kazuo Ueda will be keenly watched. Japan’s government has been reiterating that the administration will look for a transitioning process in the monetary policy with novel BoJ leadership to major the Japanese Yen more competitive against other FX currencies. Therefore, some further yield-widening discussions are expected from BoJ Ueda’s speech, scheduled for Friday.

Economists at Nordea are maintaining a bullish stance on the Japanese Yen, “We remain fairly optimistic on JPY due to our expectations of a turn-around in BoJ monetary policy later this year.” A note from Nordea further cited “With inflation reaching the highest point in decades and an outlook for higher wage growth ahead, the time should be ripe for a normalization of BoJ’s stimulative monetary policy.”

Meanwhile, the Australian Dollar is struggling to maintain its feet despite more rates look warranted by the Reserve Bank of Australia (RBA). Inflation in the Australian economy has not peaked yet led by solid domestic demand and the labor cost index. RBA Governor Philip Lowe is expected to continue hiking interest rates further to tame the stubborn inflation.