The AUD/JPY pair climbed close to 98.00 as the Reserve Bank of Australia (RBA) kept the Official Cash Rate steady at 3.6%. The RBA also mentioned that inflation in the third quarter could be higher than expected. The Australian Dollar strengthened against major currencies, showing the biggest gain against the Euro. In August, the Monthly Consumer Price Index rose at an annual rate of 3.0%, exceeding the predicted 2.9%.

RBA Highlights Inflation Risks

The Reserve Bank of Australia pointed out possible inflation risks in its recent statement. Future movements of the AUD could be affected by the soon-to-be-released August Trade Balance data. The Bank of Japan (BoJ) has no immediate plans for interest rate hikes. BoJ members would like more time to assess how global economic tensions are impacting Japan’s economy. The RBA sets interest rates to control monetary policy and ensure economic stability. Key indicators, like GDP and inflation data, significantly influence the value of the Australian Dollar. The RBA uses tools like Quantitative Easing and Tightening to manage the economy. These tools either add liquidity or reduce it, affecting the currency’s strength. All economic data and statements come with risks and uncertainties for market decisions.

Policy Divergence Impact

The recent rise in AUD/JPY to near 98.00 clearly shows a difference in policies between central banks. The RBA is maintaining its rate at 3.6% while expressing concerns about rising inflation, keeping the option for future rate hikes open. This is in sharp contrast to the BoJ, which sees no rush to tighten its policies. Recent economic data supports this divergence as we look ahead to 2025. For example, inflation in Australia was still high at 3.8% in the second quarter of 2025, above the RBA’s target range. On the other hand, Japan’s core inflation remained steady at around 2.5%, allowing the BoJ to be more careful. Looking back at late 2023, inflation concerns led the RBA to raise rates up to 4.35%. This history suggests that the current pause could be a temporary break before potential hikes, should inflation remain an issue. This precedent should shape our expectations for the upcoming months. For derivative traders, this scenario makes buying call options on AUD/JPY appealing over the next few weeks. It offers a chance to profit from potential gains driven by a firm RBA, while also clearly defining maximum risks. Strike prices above the current market, like 99.00 or 100.00, with expirations in November or December 2025 could be worth considering. Even though the BoJ officially ended its negative interest rate policy in March 2024, the current rate is still just above zero. The significant yield gap between Australia’s 3.6% rate and Japan’s policy rate makes carry trades quite attractive. This factor will likely keep the yen under pressure and support the Australian dollar. Create your live VT Markets account and start trading now.

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