AUD/JPY gains ground to near 111.00 as BoJ signals prolonged rate hold

The AUD/JPY cross attracts some buyers to around 110.90 during the early European session on Friday. The Japanese Yen (JPY) softens against the Australian Dollar (AUD) amid uncertainty surrounding the Bank of Japan's (BoJ) interest rate path. Traders brace for the release of Japan’s Gross Domestic Product (GDP) report for the fourth quarter (Q4), which will be released next week. 

BoJ Governor Kazuo Ueda indicated a likely "prolonged hold" on interest rates due to economic uncertainty from the Middle East war, despite a long-term commitment to rate normalization. Meanwhile, Japan’s Finance Minister Satsuki Katayama said on Friday that the government is ready to take steps in a timely fashion to combat the economic impact from the Iran conflict. She added that Japan is not fully exited from deflation. 

Traders have priced in nearly a 5% chance that the Japanese central bank will move up borrowing costs from 0.75% this month. The probability rises to about 65% if the April meeting is included, according to Bloomberg. 

On the Aussie front, a narrower-than-expected Trade Surplus might cap the upside for the AUD in the near term. Australia’s Trade Surplus shrank to 2,631M MoM in January, the Australian Bureau of Statistics showed on Thursday. This figure came in below the market consensus of 3,900M and followed December’s surplus of 3,373M.