Australian Dollar steadies vs Japanese Yen as hawkish RBA signals offset JPY strength

The Australian Dollar steadied against the Japanese Yen on Friday as hawkish comments from Reserve Bank of Australia (RBA) officials offset the strength of the Yen. The AUD/JPY pair traded at around 110.50, showing a slight 0.04% decrease for the day. Both currencies gained support from anticipations of monetary tightening by their respective central banks.

In Australia, the economic calendar remained quiet on Friday, leaving investors to focus on recent statements from the RBA. These remarks bolstered expectations of higher interest rates, with markets pricing in approximately 50 basis points of additional tightening by the end of 2027, pushing the policy rate towards around 4.85%, the highest level since 2008.

RBA Assistant Governor Sarah Hunter indicated that the bank might need to raise rates again if inflation remains persistent than anticipated. She also mentioned the possibility of another rate hike at the September meeting. Deputy Governor Andrew Hauser echoed a similar tone, stating that inflation poses a significant problem for the Australian economy and that the central bank is prepared to raise interest rates further if required.

These hawkish expectations from the RBA helped mitigate downside pressure on the Australian Dollar. In Japan, data released on Friday further reinforced the need for the Bank of Japan (BoJ) to tighten monetary policy further. The Producer Price Index (PPI) climbed 7.6% year-over-year in August, surpassing market expectations and indicating a sharper slowdown compared to previous months.

This strengthened the case for the Japanese Yen, which remained supported by expectations of more aggressive tightening from the BoJ. The unwinding of carry trades and increased capital repatriation also provided support to the Yen. However, the upside potential for the Yen remained constrained by the significant rise in oil prices.

Global inflation risks remained elevated due to the ongoing conflict between the US and Iran, which had not shown signs of de-escalation. The AUD/JPY pair traded at 110.49, maintaining a bearish near-term outlook as it remained below both the 200-day and 100-day simple moving averages. This price action suggests that rallies might encounter resistance, while the Relative Strength Index (14) at 31 indicates that downside momentum is stretched but not yet in outright oversold territory.

Initial support for AUD/JPY was observed at the recent horizontal floor near 109.24, with a stronger base at 107.70 expected if selling pressure continued. On the upside, the 200-day SMA at 110.92 served as the first barrier for bulls to overcome, with further resistance at the 100-day SMA near 113.05 and a more distant horizontal cap around 115.00.