AUD/JPY soars above 89.50 as Japan’s Unemployment Rate expands to 2.6%

• AUD/JPY has firmly climbed above 89.50 as Japan’s higher jobless rate claims the continuation of BoJ’s loose policy.
• Japan’s retail demand remained robust. Also, inflation figures outperformed estimates.
• Going forward, investors are awaiting the interest rate decision by the RBA.

The AUD/JPY pair has shown a significant upside move after the release of Japan’s economic reports associated with the Tokyo Consumer Price Index (CPI), labor market, and retail demand. Tokyo’s headline CPI has landed at 3.3%, much higher than the anticipation of 2.7% but lower than the former release of 3.4%. Tokyo’s core CPI that excludes oil and food prices has been reported at 3.4%, higher than the consensus of 3.3% and the prior release of 3.2%.

Steady Tokyo inflation conveys that the intention of the Bank of Japan (BoJ) of maintaining inflation steadily above desired targets is not affected yet. This might keep chances of an exit from ultra-loose monetary policy intact.

Meanwhile, Japan’s retail demand remained robust in February. Monthly Retail Sales expanded by 1.4% while the street was anticipating a contraction by 0.3%. Annual Retail Sales data has soared to 6.6% vs. the estimates of 5.8%. BoJ policymakers and Japan’s administration have been worried that inflationary pressures are majorly contributed by international forces and not by domestic demand. Now solid retail demand would ease some worries.

The catalyst that has brought weakness in the Japanese Yen is the weak labor market data. The Unemployment Rate has increased to 2.6% vs. the consensus and the former release of 2.4%. Also, the Jobs/Applicants ratio has been trimmed to 1.34. Weak labor market data might force the BoJ to continue its expansionary policy.

On the Australian Dollar front, investors are awaiting the interest rate decision by the Reserve Bank of Australia (RBA), which is scheduled for Tuesday. Softening Australian inflation could propel the consideration of a steady policy. Economists at ANZ Bank are of the view that “While the RBA has signaled its intention to pause at some point in coming months, we continue to think that the data is not yet consistent with a pause.”