• AUD/JPY suffered its biggest-single drop in four weeks yesterday. 
• AUD took a beating due to a below-forecast Aussie inflation number. 
• BOJ policy exhaustion may put a bid under the Japanese yen. 

AUD/JPY is on the defensive, having dropped 1.02 percent yesterday – the biggest single-day loss since March 22. 

The currency pair is currently trading largely unchanged on the day at 78.65, having hit a low of 78.39 on Wednesday – a level last seen on March 29. The Aussie dollar was offered across the board yesterday after a below-forecast Australian first quarter consumer price inflation release boosted expectations of an interest rate cut in May. 

The Reserve Bank of Australia (RBA) moved away from its long-held tightening bias in February. Major investment banks have forecasted rate cuts in the second half of this year ever since. 

Focus on BOJ

The Bank of Japan is widely expected to keep the key policy tools unchanged today. 

Japan’s Finance Minister Aso was out on the wires earlier this week calling the BOJ’s fight against deflation a mistake. Aso’s comments showed growing exhaustion over the unprecedented monetary stimulus in the upper echelons of the government. 

As a result, the central bank is unlikely to provide any dovish surprise. Kuroda and Co. will likely project the central bank as the one that has tools to do more if required. That, however, is unlikely to push JPY lower. 

In fact, markets may push JPY higher in response to policy exhaustion, bolstering the already bearish pressures around the AUD/JPY cross. 

The rate decision is due at 02:00 GMT. 

Technical Levels