AUD/JPY rose for a second session, trading near 110.10 in Asian hours on Wednesday. The Australian Dollar strengthened after higher-than-expected inflation data increased expectations of further Reserve Bank of Australia (RBA) rate rises this year.
Australia’s Consumer Price Index rose 3.8% year-on-year in January, matching the prior reading and above the 3.7% forecast. CPI increased 0.4% month-on-month, down from 1.0% previously, while the RBA’s Trimmed Mean CPI rose 0.3% month-on-month and 3.4% year-on-year.
Rba Governor Bullock Speech Watch
Traders are set to watch RBA Governor Michele Bullock, who is due to speak at a fireside chat at the Melbourne University Faculty of Economics & Business Foundation Dinner. The event is scheduled to take place in Melbourne, Australia.
The pair also gained as the Japanese Yen fell after Mainichi Shimbun reported that Prime Minister Sanae Takaichi raised concerns about further rate rises in a meeting last week with Bank of Japan Governor Kazuo Ueda. Ueda said the meeting covered broad economic and financial topics and that no specific monetary policy requests were made.
Takaichi is associated with pro-stimulus policy preferences, including expansionary fiscal measures and accommodative monetary settings. The report added uncertainty around the outlook for Bank of Japan rate increases amid speculation of policy normalisation later this year.
We remember this time last year, in early 2025, when unexpectedly strong Australian inflation data was pushing the AUD/JPY cross towards the 110.10 level. This was driven by the market expecting more interest rate hikes from the Reserve Bank of Australia. The simultaneous weakness in the Yen, fueled by political pressure for continued stimulus, created a strong upward trend for the pair.
Changed Macro Backdrop
One year later, the environment has changed significantly. Australian inflation has cooled, with the latest data for January 2026 showing the annual CPI rate has fallen to 2.9%, which is now back within the RBA’s target band. Consequently, the market is no longer pricing in RBA hikes and has instead shifted to forecasting a potential rate cut later this year.
In contrast, Japan’s situation has evolved since the political commentary we saw in early 2025. The Bank of Japan finally exited its negative interest rate policy late last year, and with core inflation holding firm at 2.4%, speculation is now centered on when the next rate hike will occur. This fundamental shift has seen the AUD/JPY pull back to trade around the 98.75 mark today.
For the coming weeks, this policy divergence suggests positioning for further downside in AUD/JPY. Traders could consider buying put options to capitalize on a potential decline, especially if upcoming Australian wage data shows any weakness. A move toward the 97.00 support level seen in late 2025 seems plausible under these conditions.
The implied volatility in AUD/JPY options reflects this new uncertainty, making long volatility strategies like straddles expensive. Therefore, a more defined strategy, such as a bear put spread, could be more cost-effective for traders. This would involve buying a put option at a higher strike price and selling one at a lower strike, limiting both the initial cost and the potential profit.
