Australian Dollar rises against Japanese Yen as BOJ raises policy rate to the highest since 1995
- AUD/JPY surges to near 112.05 in Friday’s Asian session, up 1.05% on the day.
- BoJ raises the policy rate to a 31-year high of 1.25%, as widely expected.
- RBA’s Bullock warned inflation could stay higher for longer.
The AUD/JPY cross rises to around 112.05 during the Asian trading hours on Friday. The Japanese Yen (JPY) attracts some sellers against the Australian Dollar (AUD) following the Bank of Japan (BoJ) interest rate decision. Traders await BoJ Governor Kazuo Ueda's press conference, which could offer some hints about the timing and pace of further hikes.
As widely expected, the BoJ board members decided to raise the short-term interest rate by 25 basis points (bps) to 1.25% from 1.00% at its September policy meeting on Friday. The decision was made by a 7-2 vote, with board members Toichiro Asada and Ayano Sato dissenting from the decision.
The Japanese central bank said it must be vigilant to risks, particularly Middle East developments, AI demand, FX volatility, and their impact on the economy and prices. BoJ said there is a risk that underlying inflation could overshoot its 2% target.
The Japanese Yen falls in an immediate reaction to the BoJ rate decision as the outcome is not hawkish enough for markets.
BoJ Governor Kazuo Ueda’s remarks at 06:30 GMT will be closely monitored for clues on whether another rate hike could reinforce the Japanese Yen's rebound.
On the Aussie front, the Reserve Bank of Australia (RBA) has held the Official Cash Rate (OCR) at 4.35%, following three consecutive hikes earlier this year. Markets are now pricing in nearly 76% odds that the Australian central bank will raise the Official Cash Rate (OCR) to 4.60% at the next RBA Board meeting, according to RBA Rate Tracker.
Early Friday, RBA Governor Michele Bullock said that risks to the outlook were skewed to the upside at the August board meeting. Meanwhile, Deputy Governor Andrew Hauser stated that the board was fully committed to reaching inflation target.
Yen focus as Danske Bank looks for a nimbler BoJ tightening signal
Analysts at Danske Bank expect the BoJ to adjust its communication on the policy path, arguing that the central bank is likely to "signal a nimbler approach to the tightening pace than the very cautious hiking cycle we have witnessed so far." In their view, any indication that the BoJ intends to stick with its previous, highly gradual stance would risk undermining the currency, as "anything else will weigh heavy on the yen."
BoJ flags risk of inflation overshoot as Yen weakness feeds price pressures
FXS Speechtracker shows the speech score at 8.2, exactly in line with the speaker’s historic average, but the tone is clearly more hawkish as the BoJ highlights underlying inflation approaching 2% and the risk of overshooting the target. The commitment to “continue to raise interest rates” while keeping financial conditions accommodative signals a gradual normalization path that still supports growth, yet marks a firmer stance against persistent price pressures and rising inflation expectations.
The emphasis on the impact of Middle East developments, AI-related demand and recent Yen depreciation on wholesale and consumer prices underlines a growing concern that imported and cost-push factors could entrench inflation above target. This mix of vigilance on external shocks and acknowledgement that firms are passing on higher wages to prices reinforces a hawkish bias, supporting a stronger Yen narrative as markets price in a more sustained BoJ tightening cycle.
Technical Analysis: AUD/JPY remains capped under the 100-day SMA
In the daily chart, AUD/JPY keeps a bearish near-term tone as price holds beneath the 20-period Bollinger middle band and the 100-day moving average. The pair is also trading well under the upper Bollinger band, suggesting rallies remain capped, while the Relative Strength Index (14) around 50 points to neutral momentum rather than a decisive recovery.
On the topside, immediate resistance is clustered at the 20-period Bollinger middle band at 112.35, followed by the 100-day moving average at 112.90, with a stronger barrier at the upper Bollinger band near 115.70. On the downside, the next notable support appears at the lower Bollinger band around 109.05, where sellers could reassess if the decline extends.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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