AUD/JPY hovers around 102.00 amid less hawkish RBA

AUD/JPY hovers around 102.00 during the European session on Wednesday. The Australian Dollar (AUD) declined following the Reserve Bank of Australia (RBA)'s decision to keep its interest rate at 4.35% on Tuesday, which added pressure on the AUD/JPY cross. Investor sentiment tilted towards a potentially more hawkish stance from the RBA, especially after March's unexpected surge in Australian monthly inflation, contrasting with market forecasts of stagnation.

Furthermore, RBA Governor Michele Bullock underscored the importance of remaining vigilant regarding inflation risks. Bullock expressed confidence that current interest rates are appropriately positioned to guide inflation back into the target range of 2-3% in the latter half of 2025 and toward the midpoint by 2026. Nonetheless, the RBA acknowledged a recent halt in progress toward curbing inflation, maintaining its forward guidance of "not ruling anything in or out."

The Japanese Yen (JPY) experienced appreciation last week amidst speculation surrounding potential intervention by Japanese authorities. According to Reuters, data from the Bank of Japan (BoJ) indicated that Japanese authorities may have allocated approximately ¥6.0 trillion on April 29 and ¥3.66 trillion on May 1 to bolster the JPY. However, these interventions were only able to offer temporary relief, given the substantial interest rate differentials between Japan and the United States (US).

The Japanese Yen faces challenges despite prevalent warnings from Japanese authorities regarding extreme currency fluctuations. Finance Minister Shunich Suzuki reiterated the caution that authorities stand ready to address excessive foreign exchange volatility. While the Bank of Japan (BoJ) Governor Kazuo Ueda highlighted the need to evaluate the impact of Yen movements on inflation to guide policy decisions.