Figure 1: Inflation Rates in Japan. Source:Trading Economics
During today’s Asian trading session, Bank of Japan Governor Haruhiko Kuroda insisted that the ultra-low interest rate policy will be maintained. He stressed that the central bank will continue to implement accommodative policy unless the inflation rate stabilizes to the 2% target level. The latest data show that Japan’s October CPI recorded a year-on-year increase of 3.7%, the highest level since January 1991. From the previous month, the figure recorded a 0.6% increase, the largest increase since April 2014. In terms of core CPI, the data in October recorded an increase of 3.6% year-on-year, the fastest growth rate since February 1982; compared with the previous month, the data recorded an increase of 2.5%, exceeding the average level since 1971 (2.36%). In this regard, Haruhiko Kuroda pointed out that the price increase is mainly affected by the soaring cost of imports, and “inflation will slow down to below the 2% target in the next fiscal year.” In short, Haruhiko Kuroda’s remarks mean that there is a high probability that the Bank of Japan will not change its policy in the short term.
Figure 2: Australian interest rates. Source：Trading Economics
Earlier today, the Reserve Bank of Australia announced its interest rate decision. The central bank raised rates for the eighth time in a row, announcing a 25 basis point hike at the meeting, taking the cash rate to 3.10%, the highest level since November 2012. The central bank’s policy decision was in line with market expectations. Considering that the labor market is still tight and wages are under upward pressure, the Reserve Bank of Australia has shown a more hawkish stance and signaled that further interest rate hikes will still be carried out next year to bring down inflation. Expectations for the RBA terminal rate are now at 3.35%, up from 3.10% previously. The central bank expects inflation to peak at 8% in the December quarter and remain slightly above 3% in 2024. For short-term economic growth expectations, the RBA believes that the road to a soft landing is still narrow, with an average GDP growth of 1.5% in 2023 and 2024.
AUDJPY recorded a strong rebound after Haruhiko Kuroda’s speech and the RBA interest rate decision, and is currently holding above the FR 61.8% (91.55) level. There is a small resistance of 92.15-92.25 in the 4-hour chart. A close above this level could signal a continuation for the bulls to test the next resistance at 92.85 (FR 50.0%) and the 100-day SMA. Conversely, if the rally loses momentum, the pair will pull back and test 91.55. A successful breakout would open a new round of short selling, with the pair likely to come under pressure to a 4-month low of 90.51, followed by 89.65 (FR 78.6%).