The AUD/JPY experienced a halt in its decline following fears of intervention aimed at boosting the Japanese Yen. This led to a nearly 300-pip pullback with the Relative Strength Index (RSI) indicating potential consolidation before a trend continuation. The exchange stabilised around 106.61, virtually remaining unchanged, despite previous bearish sessions.
There is an upward bias for the pair, facing resistance at 109.00 within an uptrend channel. Intervention fears caused the pair to drop to 106.08, down almost 300 pips. If the pair breaks above 107.59, it could target levels between 108.00 and 109.00.
Downside Risks and Support Levels
For downside risks, a retreat below 103.00 could bring support levels at 105.22 and 105.00 into play. A further decline would target support near 104.40. The Australian Dollar proved to be the strongest against the US Dollar among major currencies this week.
Looking back to this time in 2025, we saw the AUD/JPY pair stall around the 106.00 level due to fears of intervention from Japanese authorities. That 300-pip pullback was a reminder of how quickly sentiment can shift, even within a strong uptrend. Ultimately, those fears subsided, and the pair continued its upward trajectory through the rest of the year.
The fundamental picture driving this pair remains largely the same, only more pronounced now in early 2026. We’ve seen Australia’s Q4 2025 inflation data come in at 4.1%, keeping pressure on the Reserve Bank of Australia to hold rates higher for longer. Meanwhile, the Bank of Japan continues its ultra-loose monetary policy, creating a significant interest rate difference that favors the Aussie dollar.
Strategic Trading Approaches
This policy divergence suggests the path of least resistance is still upwards for AUD/JPY. Derivative traders might consider buying call options to capitalize on a potential move towards the 108.00 or 109.00 levels. This strategy allows for participation in the upside while defining and limiting the maximum risk on the trade.
Given the consolidation we are seeing, a bull call spread could also be an effective strategy for the coming weeks. This involves buying a call option and selling another at a higher strike price to lower the overall cost of the position. It’s a way to bet on a steady, controlled rise rather than an explosive breakout.
However, the risk of intervention, though quiet, never truly disappears, as we were reminded of in early 2025. Traders should remain nimble and could consider using the 105.00 level as a mental stop or a trigger to hedge long positions. A small purchase of out-of-the-money put options can serve as a cheap insurance policy against any surprise announcement from Tokyo.
