The AUD/JPY pair rose to near 98.00 as the Reserve Bank of Australia (RBA) kept the Official Cash Rate steady at 3.6%. The RBA suggests the third quarter inflation could surpass prior predictions.
The Australian Dollar gained strength against major currencies, showing the highest increase against the Euro. The Monthly Consumer Price Index grew at an annual rate of 3.0% in August, beating the forecasted 2.9%.
RBA Highlights Inflation Risks
The Reserve Bank of Australia highlighted potential upside risks to inflation in its recent statement. Future movements for the AUD may be influenced by the upcoming August Trade Balance data.
The Bank of Japan (BoJ) signalled no immediate plans for interest rate hikes. BoJ members want more time to evaluate the impact of global economic tensions on Japan’s economy.
The Reserve Bank of Australia sets interest rates to manage monetary policy and ensure economic stability. Key economic indicators like GDP and inflation data directly affect the Australian Dollar’s value.
Quantitative Easing and Tightening are tools the RBA employs to manage the economy, either by injecting liquidity or reducing it, which impacts the currency’s strength. All data and statements carry inherent risks and uncertainties for any market decisions.
Policy Divergence Impact
Given today’s jump in AUD/JPY to near 98.00, we see a clear signal of policy divergence between central banks. The Reserve Bank of Australia is holding its rate at 3.6% but is flagging concerns about higher inflation, which keeps the possibility of future rate hikes on the table. This contrasts sharply with the Bank of Japan’s message, where officials see no immediate need to tighten their own policy.
This divergence is supported by recent economic data we’ve been tracking through 2025. For instance, the latest data for the second quarter of 2025 showed Australian headline inflation still elevated at 3.8%, well above the RBA’s target band. Meanwhile, Japan’s core inflation has been more subdued, hovering around 2.5%, giving the BoJ room to remain cautious.
We should remember the pattern from late 2023, when similar inflation concerns prompted the RBA to continue its hiking cycle all the way to 4.35%. That history suggests this current “hold” could be a temporary pause before another potential hike if inflation pressures persist. This historical precedent should inform our expectations for the coming months.
For derivative traders, this environment makes buying call options on AUD/JPY an attractive strategy over the next few weeks. It allows for capitalizing on potential upward moves driven by a hawkish RBA, while strictly defining the maximum risk involved. We could consider looking at strike prices above the current market, such as 99.00 or 100.00, with expirations in November or December 2025.
Even though we saw the Bank of Japan formally end its negative interest rate policy back in March 2024, the resulting rate is still barely above zero. The significant yield difference between Australia’s 3.6% rate and Japan’s policy rate continues to make the carry trade highly appealing. This fundamental factor will likely keep downward pressure on the yen and support the Australian dollar.
