AUD/JPY corrects from 92.00 as RBA sees inflation softening ahead

• AUD/JPY has dropped firmly amid expectations that the Australian economy has seen inflation peak in Q4 last year.
• The RBA might continue hiking interest rates as the inflation rate is extremely far from the 25 inflation target.
• Japan’s officials are continuously reiterating the need for wage growth for the BoJ and the government.

The AUD/JPY pair has slipped below 91.60 after failing to kiss the crucial resistance of 92.00 in the late New York session. The risk barometer has lost strength and is declining firmly after commentary from the Reserve Bank of Australia’s (RBA) head of economic analysis Marion Kohler.

RBA’s Kohler is of the view that the Australian economy has seen the inflation peak at 7.8% in the fourth quarter of CY2022 and now the price pressures may start declining ahead. Last week, the Australian Bureau of Statistics reported a jump in the inflation rate to 7.8% amid supply chain bottlenecks and rising food prices.

Meanwhile, a decline in monthly Retail Sales (Dec) data released this week supports the view of RBA’s Kohler of inflation softening ahead. The economic data contracted by 3.9% from an expansion of 1.7% released in November while the street was expecting a contraction of 0.3%. A contraction in retail demand is a critical indicator for inflation projection as lower consumer spending calls for a decline in the prices of goods and services by producers at factory gates to maintain the demand-supply mechanism.

However, RBA Governor Philip Lowe might continue hiking interest rates further as the road to recovery is far from over. The RBA is expected to continue the 25 basis points (bps) interest rate hike spell to tame stubborn inflation.

On the Japanese Yen front, Japan's Finance Minister Shunichi Suzuki reiterated on Tuesday that “wage increases are important to both the government and the Bank of Japan (BoJ).