Australian Dollar gains ground against Japanese Yen, intervention risk looms

The AUD/JPY cross gains ground to near 113.55 during the early European session on Monday. The Australian Dollar (AUD) edges higher against the Japanese Yen (JPY) due to the interest rate differential between the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ). However, fears of possible intervention from Japanese officials might cap the upside for the cross. 

After delivering three consecutive 25 basis points (bps) hikes earlier this year, the RBA decided to hold the Official Cash Rate (OCR) steady at 4.35% at its June policy meeting. The Australian central bank is currently in a "wait-and-see" mode to evaluate how its tightening cycle is impacting sticky core inflation and a cooling domestic economy.

The ASX 30-Day Interbank Cash Rate Futures implied a 16% odds of an RBA rate hike in August, with a roughly 50% to 60% chance of one more hike by December 2026.  

Traders remain on for potential intervention from Japanese authorities. Japan’s Finance Minister Satsuki Katayama said on Friday that "if it becomes necessary, we will take decisive action at any time.”  

The Japanese central bank will meet later this month after hiking interest rates to the highest level in three decades in June. The BoJ is likely to raise rates again before the end of the year, but it isn’t seen moving at the July policy meeting.