Following BoJ rate decision, Australian Dollar remains lower against Japanese Yen

• AUD/JPY stays under pressure, with the Japanese Yen retaining its strength after the BoJ’s policy announcement.
• In line with expectations, the BoJ left its policy rate steady at 1.25%.
• An 80% probability of an RBA rate increase to 4.85% was priced into ASX futures as of 29 October.

AUD/JPY remains under pressure for a second straight day, hovering near 110.80 in Friday’s Asian session as the Japanese Yen (JPY) retains its strength. At the end of a two-day monetary policy review, Bank of Japan (BoJ) board members opted to maintain the short-term interest rate at 1.25%, leaving the Yen stronger following the decision.

Expectations of additional tightening by the Reserve Bank of Australia (RBA) are supporting the Australian Dollar (AUD), potentially limiting further declines in AUD/JPY. Following stronger-than-forecast inflation figures and hawkish remarks from RBA officials, markets have increasingly factored in a rate increase at the central bank’s forthcoming meeting on 3 November.

An 80% chance of a rate rise to 4.85% at the next RBA Board meeting was implied by the ASX 30-day interbank cash rate futures November 2026 contract. As of 29 October, the contract stood at 95.22.

Will firmer inflation prompt one final RBA hike, as TD Securities expects?

A stronger third-quarter CPI reading has bolstered expectations of another RBA move next week, according to TD Securities. The bank now expects the central bank to "lift the cash rate 25bps at next week's meeting to 4.85%," saying the firmer inflation reading "validates the Bank's decision to hike last month". It also argues that "likely forecast upgrades to the Bank's inflation track in the November Statement on Monetary Policy likely justify a follow-up 25bps hike next week." However, TD Securities believes this "hike should mark the last in the cycle," indicating that the tightening phase is approaching its conclusion.