AUD/JPY Surges to Near 113.50 Amid BoJ Hike Expectations

The AUD/JPY cross strengthened to near 113.50 on Tuesday during early European trading hours, with the Japanese Yen weakening against the Australian Dollar amid mounting fiscal concerns and persistent inflationary pressures.

Markets are awaiting the release of Australian jobs data due later this week, which may influence further price movements. Prime Minister Sanae Takaichi's plan to cut the consumption tax on food to 1% for two years has raised market concerns about the government's ability to identify an alternative revenue source.

The Japanese Yen is also being weighed down by elevated energy costs, which are affecting Japan's oil-dependent economy. However, expectations have been growing for the Bank of Japan (BoJ) to raise interest rates at its next policy meeting in September, with Reuters reporting that the central bank is considering a rate hike as soon as this month.

A DBS strategist noted that market odds of a September BoJ rate hike have surged to 81% from 21%, while expectations for a Federal Reserve hike have plummeted to 32% from 72%. This shift in relative policy expectations may be underestimating the implications for JPY bears, especially given Prime Minister Takaichi's supportive stance on higher interest rates.

In technical analysis, AUD/JPY maintains a constructive bias in the near term, with price holding above both the 100-day simple moving average and the Bollinger Bands middle line. The Relative Strength Index (14) at 57.55 remains comfortably above neutral, hinting at constructive momentum without reaching overbought conditions.