AUD/JPY drops to 94.40 as BOJ continues with ultra-loose monetary policy

• AUD/JPY has eased its morning gains and has dropped to 94.40 on BOJ’s unchanged monetary policy.
• BOJ’s Kuroda has continued its ultra-dovish policy stance due to weak inflation and growth prospects.
• The RBA may continue its 25 bps rate hike extent despite a historic surge in inflation.

The AUD/JPY pair has surrendered the majority of its morning gains and has slipped to 94.40 as the Bank of Japan (BOJ) has carry-forwarded its ultra-dovish policy stance. The BOJ has kept interest rates unchanged led by the lower inflation rate and external demand shocks.  

Maintenance of status-quo was already expected by BOJ Governor Haruhiko Kuroda as the overall demand has not picked up in the Japanese economy. The nation has been failing in returning to pre-pandemic growth levels, which is compelling the central bank to release helicopter money.

On Thursday, Japanese officials announced that they are planning to release more stimulus to the economy to spurt the overall demand. Japan’s Finance Minister Shunichi Suzuki said that “tomorrow, a stimulus package will be decided.” Japan’s national broadcaster, NHK, reported that a stimulus package of more than JPY 29 trillion is in consideration.

Meanwhile, the global institution International Monetary Fund (IMF) has slashed Gross Domestic Product (GDP) forecast for the world’s second-largest economy, China, citing Covid-19 lockdowns and the real estate crisis as responsible for a decline in economic activities. The latest review from IMF dictates that "Risks to the banking system from the real estate sector are rising because of substantial exposure."

A significant decline in China’s GDP projections could weigh on aussie bulls as Australia is a leading trading partner of China. But majorly, aussie investors will focus on the interest rate decision by the Reserve Bank of Australia (RBA), which is due next week. Escalated inflationary pressures released this week could compel RBA Governor Philip Lowe to return to 50 basis points (bps) rate hike structure.

Economists at ANZ Bank cited that “A 50 bps rise in November is possible, but we think the RBA will prefer to hike more frequently than shift back to 50 bps, given the reasoning behind the decision to go 25 bps in October.”