AUD/JPY extends losses after Japan CPI figures amid dovish RBA’s outlook

• AUD/JPY depreciates after the release of Japan’s inflation figures released on Friday.
• The Japanese Yen gains support from the hawkish remarks made by BoJ Governor Kazuo Ueda on Thursday.
• The Australian Dollar loses ground as soft domestic jobs data reinforced a dovish outlook on RBA’s monetary policy.

AUD/JPY continues to decline for the second consecutive session following the release of Japan's inflation data on Friday. The National Consumer Price Index (CPI) for March rose by 2.7% year-over-year, compared to a 2.8% increase in February, according to the latest data from the Japan Statistics Bureau. This index assesses the price fluctuations of goods and services bought by households.

The Japanese Yen (JPY) receives upward support from the hawkish remarks made by Bank of Japan’s (BoJ) Governor Kazuo Ueda on Thursday. According to a Reuters report, Ueda mentioned in a press conference that the central bank might consider raising interest rates again if significant declines in the Yen substantially boost inflation. This underscores the influence that currency movements could have on the timing of the next policy shift.

The Australian Dollar (AUD) experienced losses, along with a decline in the ASX 200 Index on Friday. Additionally, Australia’s 10-year government bond yield dropped below 4.3%, stepping back from over four-month highs. This retreat was attributed to soft domestic jobs data, which reinforced a dovish outlook on the Reserve Bank of Australia’s (RBA) monetary policy.

Daily Digest Market Movers: AUD/JPY depreciates on dovish RBA’s outlook

• Japan’s National CPI, excluding fresh food but including fuel costs, increased 2.6% year-over-year in February, decelerating from a four-month high of 2.8% in January and falling below forecasts of 2.7%. The slowdown was attributed to mild increases in food prices, although it remained above the Bank of Japan’s 2% target due to the weakness of the Yen and high commodity prices.
• Bank of Japan board member Asahi Noguchi stated on Thursday that the pace of future rate hikes would probably be much slower than that of its global counterparts in recent policy tightening. This is because the impact of rising domestic wages has yet to be fully transmitted to prices, as reported by Reuters.
• Analysts at Rabobank suggested that stronger Japanese economic data, coupled with stronger expectations that the Bank of Japan (BoJ) may raise rates again later this year, would likely provide the Japanese Yen (JPY) with broad-based strength. They posit that if Japanese real household incomes turn positive later this year, there is a possibility of another BoJ rate hike.
• On Thursday, Australia’s Employment Change posted a reading of -6.6K for March, against the expected 7.2K and 117.6K prior. Australia’s Unemployment Rate rose to 3.8% in March, lower than the expected 3.9% but higher than the previous reading of 3.7%.
• According to a Westpac report, while the central bank signaled that rates are unlikely to be raised further, it requires greater confidence in the inflation outlook before contemplating the possibility of rate cuts.

Technical Analysis: AUD/JPY drops to the support level of 98.00

The AUD/JPY trades around 98.20 on Friday. The breach below the significant support level of 98.65, coupled with the 14-day Relative Strength Index (RSI) persisting below the 50 level, indicates a bearish sentiment for the pair. The AUD/JPY cross could find immediate support at the psychological level of 98.00. A break below this level could lead the pair to approach the major level of 97.50. On the upside, the major level of 98.50 appears as the barrier, followed by the 50-day Exponential Moving Average (EMA). A breakthrough above the latter could support the AUD/JPY cross to explore the region around the psychological level of 99.00.

AUD/JPY: Daily Chart