AUD/JPY sees an upside to near 97.00, yen weakens on prolonged dovish BOJ

• AUD/JPY is expected to extend gains on RBA-BOJ policy divergence.
• The BOJ has restricted its yields to 0.25 to keep up the ultra-loose monetary policy.
• RBA’s 50 bps rate hike announcement may shrink its employment generation ability further.

The AUD/JPY pair is scaling firmly higher towards the round-level resistance of 97.00 on broad weakness in the Japanese yen. The risk barometer is expected to continue its three-day winning streak after overstepping Wednesday’s high at 96.88.

A divergence in the approach of the Bank of Japan (BOJ)’s monetary policy with its respective G-10 peers has brought an intense sell-off in yen. A gradual downside move in Tokyo was lucrative in fetching more business opportunities, however, investors are dumping yen, which has raised concerns. The ideology of restricting the 10-year benchmark Japanese yields at 0.25% is denting the yen’s demand.  

It is worth noting that the Japanese economy has achieved the desired 2% inflation target. However, the context is boosted by higher oil prices rather than a broad-based recovery in the aggregate demand.

Meanwhile, the aussie has been underpinned amid a rate hike announcement by the Reserve Bank of Australia (RBA) on Wednesday. The RBA unexpectedly elevated its Official Cash Rate (OCR) by 50 basis points (bps), double the consensus of 25 bps. No wonder, the galloping price pressures forced the RBA to feature a jumbo rate hike but vulnerable employment opportunities may get dented further as the quantitative tightening will lose up the labor market. To be noted, the Australian economy added only 4k jobs in May, significantly lower than the expectations of 30k.