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AUD/JPY Price Forecast: Strengthens to near 113.50, near-term outlook remain constructive

  • AUD/JPY gathers strength to near 113.40 in Tuesday’s early European session. 
  • The cross keeps the positive tone above the 100-day SMA, with bullish RSI momentum. 
  • The initial support level is seen at 113.00; the first upside barrier to watch is 113.88. 

The AUD/JPY cross trades in positive territory around 113.40 during the early European trading hours on Tuesday. The Japanese Yen (JPY) weakens against the Australian Dollar (AUD) amid mounting fiscal concerns and persistent inflationary pressures. Traders await the release of the Australian jobs data, which is due later on Thursday. 

Prime Minister Sanae Takaichi’s plan to cut the consumption tax on food to 1% for two years has raised market concerns, as the government has yet to identify an alternative revenue source and the measure is viewed as an ineffective way to combat inflation. Additionally, markets are also concerned about elevated energy costs, which are weighing on Japan’s oil-dependent economy and the Japanese Yen. 

Nonetheless, expectations have been mounting for the Bank of Japan (BoJ) to raise rates at its next policy meeting in September. Reuters in a report Friday said the Japanese central bank is considering a rate hike as soon as September. Overnight index swaps are pricing in an about 80% probability of a move by that month.

Yen narrative shifts as BoJ hike odds surge while Fed expectations fade

DBS strategist Philip Wee highlights a sharp repricing in relative policy expectations, noting that “market odds of a September Bank of Japan rate hike have surged to 81% from 21%, while expectations for a Fed hike have plummeted to 32% from 72%.” He argues that JPY bears may be underestimating the implications of this swing in market-implied probabilities, especially against the backdrop of a more supportive stance on higher interest rates from Prime Minister Sanae Takaichi, who is under growing domestic pressure to stabilize the Yen.

Chart Analysis AUD/JPY

Technical Analysis: AUD/JPY maintains a constructive bias in the near term

In the daily chart, AUD/JPY retains a bullish near-term bias as price holds above both the 100-day simple moving average (SMA) and the Bollinger Bands middle line, suggesting a firm underlying demand zone. The Relative Strength Index (14) at 57.55 remains comfortably above neutral, hinting at constructive momentum without yet reaching overbought conditions.

On the downside, immediate support is seen at the 100-day SMA at 113.00, followed by the Bollinger middle band near 112.65. The next contention level is located at the lower band around 110.00. 

On the topside, the immediate resistance level emerges at the July 16 high of 113.88, en route to the July 27 high of 114.67. The next hurdle to watch is the Bollinger upper band near 115.25, where a daily close above this ceiling would open the door for a continuation of the uptrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen FAQs

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

Author

Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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