## AUD/JPY Volatile at 98.50: Australian Inflation Data Drives Changes

The market is watching the movements of the AUD/JPY currency pair, which tested around 98.40 on Wednesday after bouncing back from internal trade wounds. Investors' attention is on Australia's new monthly consumer price data, which sent mixed signals to the market.

## Australian Inflation Data: Mixed Signals

Australia's monthly CPI index rose 2.3% in November year-over-year. This figure exceeded market expectations of 2.2% and showed a continued increase from 2.1% in the previous two months. This is the highest level seen since August and remains within the Reserve Bank of Australia's (RBA) target of 2–3%.

Another notable point is the weighted average (Trimmed Mean), a core inflation indicator closely monitored by monetary policy, which decreased to 3.2% annually from 3.5% previously reported, bringing it closer to the central bank's target. Inflationary pressure is easing somewhat, but notable figures in the monthly CPI may limit the RBA's future movements.

These figures are still influenced by electricity rebate refunds, which help reduce price pressure.

## Japanese Yen Strengthens on Intervention Risks

The Japanese Yen (JPY) gained support amid concerns over potential intervention in the open market by Japanese officials. However, market hesitation regarding the timing of Japan's next interest rate hike by the Bank of Japan (BoJ) is acting as a counterforce to this strengthening.

Former BoJ executive Haruhiko Kuroda presented research documents on Wednesday, signaling the possibility of further rate hikes next year. Kuroda emphasized expectations that Japan's economy will grow at 1% annually, supported by rising real wages and strong spending. The cautious rate hike policy of the BoJ aligns with a positive inflation-wage cycle to maintain the 2% target.

## Business Cycle and Foreign Exchange Dynamics

The impact on exchange rates, such as the pound or other related currency pairs, depends on the differences in the economic trajectories of different countries. When one economy shows higher inflation growth, central banks often raise interest rates to combat it, attracting global investment flows and strengthening the currency.

Currently, mixed signals from Australia—higher-than-expected CPI but declining weighted averages—indicate some distortion in inflation pressures. Meanwhile, the easing of the Yen's rate hike prospects has pushed the Yen lower, causing the AUD/JPY to test the resilience of the 98.50 level.

## The Importance of Inflation Indicators

Central banks use key inflation measures like CPI and weighted averages to monitor price stability, typically targeting around 2%. The general CPI measures the change in prices of all goods and services, while core measures exclude volatile factors like food and energy.

Returning to the inflation target suggests that central banks may slow down further rate hikes or even consider cuts if CPI remains within the target range. Policy signals depend on the market's consensus about which indicator is the most significant.

Investors must closely follow these signals, as interest rate directions influence currency movements and asset valuations. Both AUD/JPY and pound exchange rates are affected by these monetary policy cycles.