AUD/JPY bulls gain ground as RBA and BOJ monetary policies diverge

In Friday's session, the AUD/JPY was observed rising to 97.40, registering a t gain of 0.50. This performance is primarily shaped by the contrasting economic stances of the Reserve Bank of Australia (RBA) and the Bank of Japan (BOJ). With the daily chart indicating a bullish momentum and the bulls asserting their dominance, the prevailing outlook seems positive. However, the four-hour chart shows indicators have entered the overbought zone, suggesting a potential for imminent correction.

In line with that, recent statements by the RBA Governor Bullock suggest a balanced perspective with the potential for future interest rate changes. The possibility remains open for both an increase or a standstill, subject to inflation and economic growth. The market expects the RBA's first rate cut in August, with a total easing of 50 bp anticipated for the year. In contrast, the Bank of Japan BoJ maintains a dovish stance, with Governor Ueda affirming that accommodative financial conditions may continue after the current negative rates era. As per the latest data, the likelihood of rate liftoff from the BoJ is forecasted for June, with only 25 bps of tightening for the rest of 2024, and as long as markets bet on a dovish BoJ, the pair may see further upside.

AUD/JPY technical analysis

On the daily chart, the Relative Strength Index (RSI) boasts a positive trajectory within positive territory, suggesting buyers maintain control in line with the Moving Average Convergence Divergence (MACD) histogram which reveals diminishing red bars, suggesting that the buyers are in command. On a broader perspective, the pair resides above the 20-day, 100-day, and 200-day Simple Moving Averages (SMAs). This emphasizes that bullish forces hold a firm grip on the larger time frames with the bears nowhere to be found.

AUD/JPY daily chart

Moving to the four-hour chart, the momentum switches somewhat. Key performance indicators have approached overbought levels, suggesting an imminent correction. A closer look at the RSI confirms this forecast as it ventures into overbought territory. The MACD confirms this pattern as well, with its green bars gradually shrinking. In summary, whilst the bulls seem to be gaining ground currently, an impending correction looms as short-term momentum indicators align to suggest a pullback.