AUD/JPY stuck in tight range ahead of BoJ decision, RBA minutes shrugged off

The AUD/JPY pair remained stuck within a narrow range on Tuesday ahead of the outcome of the Bank of Japan’s policy meeting on Friday, while the minutes of the Reserve Bank of Australia’s September meeting were shrugged off.

The Bank of Japan’s September meeting will be closely watched for clues over when its negative interest rate policy may be reversed.

In July, the BoJ left its benchmark short-term interest rate without change at -0.10% and also kept a 0% cap on 10-year bond yields set under its yield curve control policy.

Last week, Bank of Japan Governor Kazuo Ueda said the central bank could discontinue its policy of negative interest rates when the 2% inflation target is achieved.

But Ueda once again highlighted the need to keep monetary policy accommodative until the central bank is convinced inflation will sustainably remain at levels near 2%, backed by robust demand and wage growth.

“Our sense is that the BoJ needs ammunition in order to back itself in terms of any shift or even any guidance for (a) potential shift in policy over the coming six months to the next year,” Rodrigo Catril, senior Forex strategist at National Australia Bank, was quoted as saying by Reuters.

Meanwhile, the minutes of the Reserve Bank of Australia’s most recent meeting showed the central bank had considered a 25 basis point rate hike before eventually deciding to leave the cash rate without change at 4.1% for the third consecutive month.

The case to hike interest rates was based on the expectation that Australian inflation would stay above the RBA’s target for a prolonged period if productivity growth did not accelerate as anticipated or if high services inflation continued to persist.

And, the case to put interest rates on hold was based on the observation that borrowing costs had risen significantly and the effects were still to be fully realized.

“The minutes of the RBA’s September meeting leant dovish, in our view, albeit only marginally so and not by enough to prompt a meaningful market reaction,” Robert Thompson, macro rates strategist at RBC Capital Markets, said.

“We remain of the view that the RBA may need to hike once more this cycle, but today’s minutes gave us nothing to suggest that a hike is imminent.”

As of 7:07 GMT on Tuesday AUD/JPY was inching up 0.05% to trade at 95.058.