AUD/JPY Increases on Rumors that the RBA Will Increase Its Policy Rate

On Monday, AUD/JPY maintained its winning trend for the sixth consecutive session, trading near 104.50, a level not observed since April 2013. Increasing hawkish sentiment regarding the Reserve Bank of Australia (RBA) in the wake of last week's Consumer Price Index (CPI) inflation data has propelled the AUD/JPY pair's sustained ascent.

The unforeseen increase in inflation rates compelled economists to substantially modify their previous projections. "The Australian Financial Review" was informed by Warren Hogan, chief economic adviser at Judo Bank, of his expectation that the central bank would increase the cash rate by 3.1% this year, with the initial increase most likely to occur in August. Investors are currently anticipating Tuesday's Retail Sales report for March, which measures consumer expenditure in Australia. It has a substantial impact on the inflation and GDP of Australia.

The Japanese Yen (JPY) depreciated to levels not seen in several decades subsequent to the Bank of Japan's (BoJ) decision on Friday to maintain current policy settings. The lack of clarity regarding the BoJ's interest rate projections, signs of a decline in inflation in Japan, and an overall positive sentiment in stock markets are critical elements undermining the safe-haven allure of the JPY.

Moreover, anticipations of a sustained substantial interest rate differential between Japan and other nations suggest that the trajectory of the JPY is skewed toward additional depreciation. As Japanese markets were halted on Monday in observance of Showa Day, the lack of trading activity may result in minimal changes to market dynamics.