Insights 
VT 
The AUD/JPY pair strengthened to 100.30 during the Asian session on Wednesday. This movement followed the release of hotter-than-expected inflation data from Australia, as Consumer Price Index (CPI) rose 1.3% QoQ in Q3 compared to 0.7% in Q2, exceeding the 1.1% growth expected by markets.
Australia’s CPI inflation increased to 3.2% YoY in Q3, higher than the 3.0% expected, as the monthly CPI for August rose to 3.5% YoY, surpassing the anticipated 3.1%. This data has implications for the Reserve Bank of Australia’s interest rate decision, reducing the likelihood of a near-term rate cut.
Japan’s Fiscal Strategies
Japanese Prime Minister and US Treasury comments eased concerns on Japan’s fiscal strategies, affecting JPY stability. BoJ is expected to keep its interest rate steady at 0.5% in Thursday’s meeting, with markets awaiting Governor Kazuo Ueda’s guidance post-meeting for future policies.
Several factors impact the Australian Dollar, including RBA’s interest rate decisions and the price of Iron Ore, Australia’s key export. The health of the Chinese economy, a major trading partner, also influences AUD, further driven by Australia’s trade balance and market sentiment.
With today’s hotter-than-expected Australian inflation data, the case for a stronger Australian Dollar is building. The third-quarter CPI jump to 1.3% is forcing us to reconsider the Reserve Bank of Australia’s timeline for any potential rate cuts. Futures markets are now pricing in less than a 15% chance of an RBA rate cut before the middle of 2026, creating a stark policy divergence with Japan.
This Australian strength is supported by firming commodity prices and a resilient Chinese economy. Recent data shows iron ore prices have remained steady above $120 per tonne, while China’s latest manufacturing PMI, released last week, unexpectedly climbed to 51.2, signaling expansion. This backdrop provides a solid fundamental reason to favor the AUD, especially against currencies with more dovish central banks.
Bank Of Japan’s Rate Decision
On the other side of the pair, the Bank of Japan is widely expected to keep its policy rate at 0.5% in its meeting tomorrow. Looking back, the BoJ has been extremely cautious since its small rate hikes in late 2024 and early 2025, prioritizing stability over aggressive tightening. This predictable inaction should keep the interest rate differential between Australia and Japan wide, favoring the carry trade.
In the coming weeks, we see traders positioning for further upside in AUD/JPY, which is already trading above the key 100.00 level. Using call options with strike prices around 101.50 or 102.00 for December expiry could be an effective way to capture this expected move while managing risk. Implied volatility may tick up around the BoJ announcement, so timing the entry will be important.
