AUD/JPY eases from six-month high as Yen strengthens across the board

The Australian Dollar (AUD) is retreating against the Japanese Yen (JPY) on Wednesday as the Yen strengthens broadly against major currencies. After rising steadily since last week, the AUD/JPY pair is now down over 1% from Tuesday’s six-month high of 97.43, a level last seen on January 28. At the time of writing, the pair is trading near 96.40 during the American trading session.

The Japanese Yen’s rebound comes as Japan’s 10-year government bond yield climbs toward 1.6%, its highest level since 2008. The rise in yields comes as markets anticipate increased fiscal spending ahead of the election, with speculation building around potential stimulus measures, including a possible cut to the consumption tax to boost economic activity.

Meanwhile, the Australian Dollar is experiencing a mild pullback, driven by profit-taking and fading momentum after a strong run. The rally appears to be stalling as technical indicators cool off. Notably, the Relative Strength Index (RSI) on the daily chart has eased from overbought territory, suggesting that the pair is undergoing a short-term technical correction.

Looking ahead, traders will turn their focus to Australia’s June employment report, due for release on Thursday. The labor market data will be crucial for shaping expectations around the Reserve Bank of Australia’s (RBA) next monetary policy steps. Markets are forecasting a gain of approximately 20,000 jobs, while the Unemployment Rate is expected to hold steady at 4.1%, in line with May’s print. Last month’s report showed a small headline job loss but revealed a strong pickup in full-time employment, underscoring underlying labor market resilience.

A robust jobs report could give the RBA more confidence to maintain its current cash rate or delay easing, especially after two consecutive reductions brought the cash rate down to 3.85% this year. However, a soft reading, particularly if paired with a rise in unemployment, may reignite dovish bets and place additional downside pressure on the Aussie.

Currently, markets are pricing in an 80% chance of a quarter-point cut in August, though much will depend on the second-quarter Consumer Price Index (CPI) report due at the end of July.

On the Japanese side, attention will turn to key macro releases later this week. Japan’s trade balance data is due on Thursday, followed by the national Consumer Price Index (CPI) report on Friday. Both releases will provide fresh insights into the health of the Japanese economy and may influence expectations regarding the Bank of Japan's (BoJ) policy direction. Strong CPI figures could add to the recent upward pressure on Japanese yields, further supporting the Yen and potentially adding downside risk to AUD/JPY in the near term.