AUD/JPY soars above 89.20 as BoJ keeps policy expansionary and YCC band stable

• AUD/JPY has galloped sharply above 89.20 as BoJ continues its ultra-loose monetary policy as expected.
• The BoJ is ready to take additional easing steps without hesitation as needed while striving for market stability.
• A neutral interest rate stance is expected from the RBA amid declining Australian inflation.

The AUD/JPY pair has run swiftly above 89.20 in the Asian session after the Bank of Japan (BoJ) decided to continue its ultra-loose monetary policy. BoJ Governor Kazuo Ueda in his first monetary policy meeting has announced the maintenance of expansionary monetary policy and has kept the band of Japanese Government Bonds (JGBs) band unchanged.

The decision of keeping rates in negative territory was highly expected as the central bank is struggling to keep inflation steadily above 2%. As the impact of higher import prices has concluded, inflationary pressures in Japan are failing to firm their feet.

Earlier, Nikkei reported that in the review, the BOJ will seek to clarify the effectiveness and side effects of its monetary easing steps and make use of the findings in future policy conduct. Therefore, more action is still expected from the BoJ ahead. It seems that the odds of an exit from the ultra-loose monetary policy have receded as BoJ Ueda has stated “Will take additional easing steps without hesitation as needed while striving for market stability.”

On the Australian Dollar front, investors are shifting their focus toward the interest rate policy from the Reserve Bank of Australia (RBA). Consistently declining Australian inflation is expected to provide room for RBA Governor Philip Lowe for keeping interest rates steady consecutively.

Economists at UOB cited, “Following inflation figures, the RBA is likely to remain on the sidelines at the upcoming monetary policy meeting on 2 May. As such, we continue to see the current 3.60% cash rate as the likely peak. Focus will nonetheless continue to be on incoming economic data, including 1Q23 wage price index (17 May), followed by Apr employment (18 May).”