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Will the RBA raise rates again? Unless prices surge over summer, it's looking less likely 
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The yen plunges to 34-year low despite interest rate hike 
RBA’s tolerance on Aussie inflation: Aussie core inflation has been weaker, with the average of the two measures rising by 0.32% q/q (below market consensus). There were also downward revisions to both measures for Q2, to 0.4% q/q from an initially reported 0.5% q/q. As a result, core inflation is running at just 1.5% in six month end annualised terms, the weakest result since September 2016. CPI ex-volatiles (which includes childcare) – a third measure looked at by the RBA – was very weak, rising just 0.1% q/q. the Reserve Bank of Australia (RBA) will accept inflation for some time yet to remain at the lower end of the target range of 2-3% (1.9% in Q3) and it not showing any signs of a sustainable rise. Even though the RBA still expects employment and inflation to improve, it only projects a very slow improvement despite solid growth.
BoJ’s stays pat: It is quite unexpected that the Bank of Japan (BoJ) would change its monetary policy today. Despite its forward guidance (interest rates will remain at extremely low levels for “an extended period of time”) it has quietly been on a normalisation path since it has accepted fluctuations of up to 0.2% for 10-year JGB yields. As a result, the yields have risen since the end of July, any further adjustments of this threshold to the topside would correspond to a further step towards normalisation – regardless of the forward guidance – and would therefore be positive for the yen.
How to tackle bullish JPY: As we could foresee yen’s strength in the medium run. Stay short AUDJPY in cash. The slippage in the S&P this week was too little too late to make a dent in USDJPY and the put spread we had in the pair consequently expired OTM.
Nevertheless, it gave a kicker to AUDJPY, which was also hit by the further increases in Australian bank lending rates and what at times felt like proxy selling for further EM stress.
As discussed in the introduction we believe AUD is vulnerable from an extension of the move in EM currencies and the slow bleed from US monetary policy (average earnings in this sense were a worrying development for high-beta FX), even if the bar for the market to price RBA rate cuts is high and a lot higher than in NZ seeing how the economy managed to grow 4% in 1H.
Paid 36bp for a 1m 112.168/110USD put/ JPY call spread.
Long a 3m AUDJPY put, strike 77.50, short a 3m AUDJPY 81.25-83.50 call spread. Received 0.5bps.
Short AUDJPY in cash at 80.250 levels, stop 81.062. Courtesy: ANZ, Commerzbank
Currency Strength Index: FxWirePro's hourly AUD is inching at 18 (which is mildly bullish), JPY spot index is flashing at -107 levels (which is bearish), while articulating (at 08:52 GMT). For more details on the index, please refer below weblink:
