The Aussie fell against the yen yesterday after the Reserve Bank of Australia issued a dovish statement accompanying a 25-bps hike in the benchmark interest rate. The Japanese household spending data was also unimpressive, but slightly better than forecasts. The AUD/JPY pair declined from a high of 97.10 to a low of 96.63 in the past 24 hours.
According to Japan’s Statistics Bureau, the country’s household spending fell by 2.80% y-o-y in September, following a decrease of 2.50% in the previous month. The reported figure was slightly better than forecasts of a 3% decline.
The reported figure reflects the seventh successive monthly decline, as people slashed expenses on food and other goods against the backdrop of increasing prices while real wages remained on a downtrend.
Specifically, food expenses declined 3.70% y-o-y in September, following a decrease of 2.50% in August. Likewise, housing expenses plunged 11.20% in September. Furniture and household utensils spending steeply decreased by 14.70%. Similarly, clothing and footwear spending decreased by 18.30%. While medical care spending slipped by 1.50%, education recorded a fall of 9.70%. However, spending on fuel, power, and water grew by 0.50%. Also, transport and communication expenditures surged 12.4% in the same period.
Notably, real, inflation-adjusted wages fell by 2.40%y-o-y in September, reflecting the 18th successive monthly decline.
According to Japan’s Ministry of Health, Labor, and Welfare, the country’s average cash earnings grew by 1.20% y-o-y in September, following a rise of 0.80% in August and a notch higher than forecasts of 1.10%. The average pay rise at key member companies stood at 3.99%, the highest in 31 years, as per Japan’s Business Federation.
Later in the Asian session, following the monetary policy meeting, the Reserve Bank of Australia upwardly revised its benchmark interest rate to 4.35%, the highest level since 2011, from 4.10%. Notably, this is the 13th hike since May 2022 and the first one in five months.
The rate hike was widely anticipated as the September report pegged annual inflation at 5.40%, led mainly by high gasoline prices.
In a formal statement, Bank Governor Michele Bullock conveyed that the efforts to contain inflation in Australia have encountered a slower pace of improvement than initially anticipated. Bullock stressed that while inflation in Australia has already surpassed its peak, it remains elevated and displays a greater degree of persistence than foreseen a few months ago.
The RBA, like other central banks, aims to keep inflation in a range of 2% to 3%.
However, the central bank has revised its earlier stance, previously suggesting that “some” additional rate hikes might be necessary, and now states that the need for such a move will depend on upcoming data, stressing the conditional factor of the decision.
Following the rate hike announcement, the three-year bond yields declined to 4.252% after surging to 4.359%. Similarly, the yields on 10-year government bonds slipped 5bps to 4.711%.
RBA’s rate hike coupled with dovish statements is expected to keep the AUD/JPY pair range-bound with a slight bearish bias in the short term.
The historical price chart indicates that the AUD/JPY pair is descending after facing resistance at 97.45. The next major support is anticipated only near 95.90. 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 near term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
