AUD/JPY Forecast and Economic Context
- AUD/JPY is anticipated to decline as consumer inflation expectations in Australia rose by 3.9% in August, a drop from the previous 4.7%.
- The S&P Global Manufacturing PMI in Australia increased to 52.9, while the Service PMI rose to 55.1 in August.
- The Japanese yen faces ongoing challenges due to the uncertain outlook of the Bank of Japan’s policy.
The AUD/JPY pair has enjoyed a series of gains, extending into a third session as it hovered around 94.60 during Asian trading on Thursday. The uptick in consumer inflation expectations to 3.9% in August, though lower than last month’s 4.7%, suggests that the Australian dollar (AUD) might lose some traction in this pair.
Interestingly, the AUD didn’t gain much from positive preliminary data on the Purchasing Manager Index (PMI) from S&P Global Australia. The Manufacturing PMI climbed from 51.3 to 52.9 in August, and the Services PMI went up to 55.1, shifting from 54.1. Meanwhile, the Composite PMI also showed an improvement, moving from 53.8 to 54.9.
The Reserve Bank of Australia (RBA) is likely to adopt a cautious stance following last week’s interest rate cuts. There are expectations among traders that central banks could resume easing measures—possibly as soon as November—with a significant 50 basis points cut on the table.
On the flip side, Japan’s Jibun Bank Manufacturing PMI improved slightly to 49.9 in August from 48.9 but still indicates contraction for the second month in a row. The Services PMI, however, dipped to 52.7 from 53.6 in July, marking five consecutive months of expansion for that sector.
Despite these fluctuations, the AUD/JPY struggles might face some barriers as the Japanese Yen (JPY) grapples with ongoing uncertainties about the Bank of Japan (BOJ)’s future policy direction. BOJ Governor Kazuo Ueda has been cautious, noting that “fundamental inflation” has not yet securely reached its 2% target.
Yet, domestic inflation is on the rise, and with wages not keeping pace with price growth, there’s an increasing possibility of BOJ rate hikes. The central bank raised its inflation forecast during the July meeting, further boosting speculation around a potential rate increase before the year ends.
