AUD/JPY Treads Water Ahead of BoJ Rate Hike Decision

The Australian Dollar is trading virtually unchanged against the Japanese Yen ahead of the Bank of Japan's (BoJ) rate hike decision on Friday. The AUD/JPY cross has been caught between expectations of monetary policy tightening in both Japan and Australia, with rising energy prices putting additional pressure on the Japanese economy.

Markets expect the BoJ to raise interest rates by 25 basis points on Friday, lifting the policy rate to 1.25% from the current 1%. This would bring borrowing costs in Japan to their highest level since April 1995. Traders are also considering the possibility of another rate increase in December.

The Reserve Bank of Australia (RBA) has kept its Official Cash Rate at 4.35% at the last three meetings, following three consecutive increases earlier this year. However, persistent inflationary pressures are fueling expectations of further tightening, with markets assigning nearly a 78% chance that the OCR will be raised to 4.6% at the Australian central bank's next meeting.