AUD/JPY rose over 1.20% on Wednesday after Australia’s inflation report led markets to price in more Reserve Bank of Australia rate rises. The pair was trading at 111.38 at the time of writing.
The move turned more bullish after breaking the prior yearly high of 110.79 and pushing above 111.00. The RSI moved above 70, with 80 seen as the next extreme area watched by traders.
Technical Levels And Momentum
If price breaks the yearly high of 111.47, it may test 112.00 next. With the ATR at 111 pips, the next resistance levels cited are 112.49 and then 113.00.
If the pair falls back below 111.00, it could test the 10 February cycle high of 110.67. Further downside levels mentioned are the 20-day SMA at 109.34 and a support trendline from November 2025 lows near 108.00.
The yen’s value is tied to Japan’s economic performance, Bank of Japan policy, bond yield spreads, and risk sentiment. The BoJ’s ultra-loose stance from 2013 to 2024 weakened the yen, while policy unwinding from 2024 has offered some support and narrowed the US–Japan 10-year yield gap.
Based on the strong move past 111.00, we see the immediate momentum as bullish for the AUD/JPY pair. The surge was driven by yesterday’s Australian CPI data, which came in at a quarterly rate of 1.2%, significantly higher than the 0.8% we had forecast. This has forced the market to price in at least one more rate hike from the Reserve Bank of Australia this year.
The technical picture supports buying into this strength, as the Relative Strength Index has not yet reached the extreme overbought levels we saw during similar trends in 2024. Therefore, we should consider buying call options with strike prices near the 112.00 or 112.50 levels, targeting a continued move higher in the next two to three weeks. The strong trend suggests dips toward the 111.00 level will likely be seen as buying opportunities.
Risk And Positioning Considerations
However, we must remain aware of the Japanese Yen’s potential for a sharp reversal. Just last week, we noted comments from Bank of Japan officials expressing growing discomfort with the Yen’s weakness, which could signal a faster normalization of their policy. The unwinding of the BoJ’s ultra-loose policy, which began in 2024, remains the single biggest risk to this upward trend.
To manage this risk, we can use derivatives to define our exposure, such as utilizing bull call spreads instead of buying the underlying asset directly. We’ve seen implied volatility on AUD/JPY options jump to a six-month high of 14.2% this morning, reflecting this tension between central banks. Buying protective put options with a strike below the key 110.67 support level is also a prudent way to hedge any long positions.
The fundamental backdrop continues to favor a strong Australian dollar for now. The interest rate differential is a key driver, with the spread between Australian and Japanese 10-year government bonds now at 385 basis points, its widest level since the third quarter of 2025. As long as broader market risk sentiment remains positive, this carry trade appeal should continue to pressure the safe-haven Yen.
