AUD/JPY stays near 111.00 as RBA Kent’s comments support Australian Dollar

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AUD/JPY moves sideways after three days of losses, trading around 110.90 during the Asian hours on Thursday.

AUD/JPY steadies after RBA’s Christopher Kent warned of inflation risks from rising energy prices.
The Japanese Yen is supported by increasing expectations of a near-term interest rate hike by the Bank of Japan.
Rising JGB yields signal tighter financial conditions and expectations of higher BoJ interest rates.

AUD/JPY moves sideways after three days of losses, trading around 110.90 during the Asian hours on Thursday. The currency cross holds ground as the Australian Dollar (AUD) finds support after the Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent warned policymakers may need to contain inflation amid rising energy prices.

Kent emphasized the board’s commitment to low, stable inflation and full employment, noting this could require tighter policy while preventing short-term price spikes from feeding into long-term inflation expectations.

However, the AUD came under pressure following softer domestic inflation data. Australia’s annual CPI slowed to 3.7% YoY in February from 3.8% YoY in January, while trimmed mean CPI printed at 3.3%, below the 3.4% forecast and matching January’s revised reading.

The AUD/JPY cross moves little as the Japanese Yen (JPY) draws support from rising expectations of a near-term rate hike by the Bank of Japan (BoJ). These expectations are being driven by an oil-led inflation shock tied to the Middle East conflict, with global central banks signaling readiness to tighten amid persistent price pressures. While the BoJ held its policy rate steady in March, Governor Kazuo Ueda left the door open for a potential move in April.

Meanwhile, Japan’s Government Bond yields moved higher, with the 10-year rising to 2.27% on Thursday, snapping a two-day decline. Shorter maturities also advanced, with 2-year yields hitting three-decade highs and 5-year yields reaching record levels. The rise in Japan’s government bond yields points to tightening financial conditions and growing expectations of higher interest rates.

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.