AUD/JPY falls below 98.00 following stronger inflation from Japan

• AUD/JPY depreciates after the release of stronger-than-expected inflation data from Japan on Friday.
• Japan's National Consumer Price Index climbed to a three-month high of 2.9% YoY in November, rising from 2.3% in October.
• The AUD receives downward pressure from rising odds of the RBA to begin rate cuts in February.

AUD/JPY retraces its recent gains, trading around 97.90 during the European session on Friday. This downside of the AUD/JPY cross is attributed to the improved Japanese Yen (JPY) following the stronger-than-expected inflation data.

Japan's National Consumer Price Index (CPI) reached a three-month high of 2.9% year-over-year in November, up from 2.3% in October. Additionally, the annual core inflation rate rose to 2.7%, exceeding market expectations of 2.6%. These stronger-than-expected inflation figures reinforce a hawkish outlook for the Bank of Japan's (BoJ) monetary policy.

However, the BoJ maintained its policy rate for the third consecutive meeting, keeping the short-term rate target within the range of 0.15%-0.25% after its two-day monetary policy review, in line with market expectations.

The AUD/JPY cross depreciates amid a softer Australian Dollar (AUD) amid the rising likelihood that the Reserve Bank of Australia (RBA) may begin cutting its 4.35% cash rate as early as February, amid mounting signs of an economic slowdown. Attention now shifts to the release of the RBA's latest meeting minutes due next week.

Australia's Private Sector Credit grew by 0.5% month-over-month in November, aligning with expectations, which marked the fastest monthly growth in four months. On an annual basis, Private Sector Credit rose by 6.2% in November, the highest growth rate since May 2023, up slightly from 6.1% in October.

In China, Australia’s largest export market, the People’s Bank of China (PBoC) decided during its fourth quarterly meeting to maintain the one-year and five-year Loan Prime Rates (LPRs) at 3.10% and 3.60%, respectively. Prolonged elevated borrowing costs continue to hinder economic activity in China, the world’s leading manufacturing hub, which in turn exerts downward pressure on the AUD.