20 Dec 2024

• AUD/JPY depreciates after the release of stronger-than-expected inflation data from Japan on Friday.
• Japan's National Consumer Price Index climbed to a three-month high of 2.9% YoY in November, rising from 2.3% in October.
• The AUD receives downward pressure from rising odds of the RBA to begin rate cuts in February
• AUD/JPY has retraced some of its recent gains, currently trading at approximately 97.90 during the European session on Friday. This decline in the AUD/JPY cross can be attributed to the strengthening of the Japanese Yen (JPY), which follows the release of stronger-than-anticipated inflation data.
  
  In November, Japan's National Consumer Price Index (CPI) reached a three-month peak of 2.9% year-over-year, an increase from 2.3% in October. Furthermore, the annual core inflation rate climbed to 2.7%, surpassing market expectations of 2.6%. These unexpectedly robust inflation figures bolster a hawkish perspective regarding the monetary policy of the Bank of Japan (BoJ).
• The Bank of Japan (BoJ) has opted to keep its policy rate unchanged for the third consecutive meeting, maintaining the short-term rate target within the range of 0.15%-0.25% following its two-day monetary policy assessment, which aligns with market forecasts.
  
  The AUD/JPY exchange rate has weakened, influenced by a declining Australian Dollar (AUD) as the probability increases that the Reserve Bank of Australia (RBA) may initiate cuts to its 4.35% cash rate as early as February, in light of growing indications of an economic slowdown. Focus is now directed towards the upcoming release of the RBA's latest meeting minutes scheduled for next week.
  
  In November, Australia's Private Sector Credit experienced a month-over-month increase of 0.5%, meeting expectations and representing the fastest monthly growth observed in four months. Year-over-year, Private Sector Credit rose by 6.2% in November, marking the highest growth rate since May 2023, a slight increase from 6.1% in October.
  
  In China, which is Australia’s largest export market, the People’s Bank of China (PBoC) decided during its fourth quarterly meeting to keep the one-year and five-year Loan Prime Rates (LPRs) at 3.10% and 3.60%, respectively. Persistently high borrowing costs continue to impede economic activity in China, the world’s foremost manufacturing center, thereby applying downward pressure on the AUD.