The near-term rebound in AUD/JPY may gather pace over the coming days as the pair appears to be carving a bullish-flag formation, but the aussie-yen may continue to give back the advance carried over from the previous month should the Bank of Japan (BoJ) endorse a wait-and-see approach for monetary policy.
Chart - Cre ated Using FXCM Marketscope 2.0
Even though the BoJ keeps the door open to further embark on the easing cycle, the central bank may stick with the status quo as Prime Minister Shinzo Abe prepares to unveil a 'bold' fiscal stimulus package, and more of the same from Governor Haruhiko Kuroda and Co. may trigger a bullish reaction in the Japanese Yen as market participants scale back bets for more non-standard measures.
At the same time, the Reserve Bank of Australia (RBA) may come under increased pressure to further reduce the benchmark interest rate at the next policy meeting on August 2 as the 2Q Consumer Price Index (CPI) highlights a weakening outlook for inflation. With that said, AUD/JPY stands at risk of giving back the rebound from the June low (72.43), and we may see the bearish trend from 2014 reassert itself over the coming days/weeks should Governor Glenn Stevens and Co. take additional steps to further assist with the rebalancing of the Australian economy.
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--- Written by David Song, Currency Analyst
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