Video Source: 9 News Australia on YouTube
The Aussie declined against the yen yesterday following the news of the Reserve Bank of Australia’s (RBA) decision to refrain from another rate hike. Japan’s household spending data was also worse than anticipated. However, the market was focused on the monetary policy of the RBA. This paved the way for the decline of the AUD/JPY pair. Overall, the AUD/JPY pair declined from a high of 94.70 to a low of 93.60 in the past 24 hours.
According to the Statistics Bureau, Japan’s household spending fell by 5% y-o-y in July, following a 4.20% decline in the previous month and more than twice the 2.40% decrease anticipated by economists.
On an m-o-m basis, household spending dipped by 2.70% in July, reflecting the steepest decline since February, as consumers restrained spending on cars and telecommunications.
The weak consumer spending data indicates that the third largest economy is facing difficulty gaining momentum as inflationary pressure continues to exceed wage gains while consumer spending stays below pre-pandemic levels. Notably, major consumer prices grew by 3.10% y-o-y in July.
To fuel spending, Japan’s Prime Minister, Fumio Kishida, stated that he will broaden and extend subsidies for gasoline to assist households. Additionally, Kishida has planned a fresh round of economic stimulus to be rolled out this fall. Of late, despite prevailing subsidies, the price of gasoline has hit a historical high.
Private consumption declined at a yearly rate of 2.10% in the June 2023 quarter, reflecting the country’s longest period of slightly high inflationary pressure that threatens to derail the economic rebound.
Economists forecast the growth figure to be downwardly revised in related economic data scheduled to be released Friday as the latest series of corporate capital spending information has been lower than expectations. For the current quarter, analysts expect the economy to post a contraction after exceptional data in the past three-month period.
The delicate scenario will enable the Bank of Japan to defend its ultra-loose monetary policy to support the economy until inflationary pressure remains in tune with wage growth.
The Reserve Bank of Australia (RBA) held its benchmark interest rates steady for the third successive month, at 4.10%, in line with economists’ estimates. Furthermore, RBA governor Philip Lowe reaffirmed that further policy tightening may be required to limit inflation.
At the end of the September policy meeting, Lowe stated that the latest series of economic data (inflation, wages, and jobs) point to inflation returning to the central bank’s targeted range of 2% to 3% at the end of 2025.
Since May 2022, the RBA has upwardly lifted interest rates by 400 basis points, with the benchmark interest rate hitting an 11-year high. However, the complete effect of policy tightening is only experienced now as inflation slows down and economic growth declines.
The RBA governor stated that the board will continue to closely track developments in the world economy, changes in household spending, and the forecast for inflation and the labor market.
The RBA’s decision to refrain from hiking interest rates is expected to keep the Aussie slightly bearish in the short term.
The historical price chart indicates that the AUD/JPY is descending after failing to break the resistance at 94.70. The next support is anticipated only near 92.30. Additionally, the currency pair is trading below its 50-day moving average, while the stochastic indicator is in the bearish zone. Therefore, we anticipate the AUD/JPY pair to remain in a downtrend in the short term.
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