AUD/JPY Sinks on Weaker Inflation, BoJ Rate Hike Odds Remain High

The AUD/JPY cross is experiencing losses due to weaker inflation data from Australia and reduced expectations of an interest rate hike by the Reserve Bank of Australia (RBA). The pair has declined about 0.65% for the week, trading near 113.65 in early European hours on Thursday.

Australia's June headline Consumer Price Index (CPI) came in at 3.8%, below both May's 4.0% and market expectations of 4.0%. This has led to a significant repricing lower for near-term RBA rate hike bets, with market-implied odds dropping from nearly 21% to about 3% to 4%.

The Bank of Japan (BoJ) is widely expected to hold its key interest rate at 1.0% on Friday, despite signals of a relatively hawkish stance from policymakers. Analysts surveyed by Reuters expect the BoJ to raise rates to 1.25% by the end of December, with some seeing the possibility of a move as early as October.