Current Market Conditions
AUD/JPY eased to near 105.00 during the early European session on Thursday, maintaining a generally bullish outlook. The first resistance level is at 106.05, with initial support at 102.65.
The Yen is gaining strength against the Aussie as the Bank of Japan is seen committed to its policy path. January BoJ reports reflected consistent economic assessments, with regions describing economies as “recovering moderately.”
Australia’s mixed November CPI readings have left the Reserve Bank of Australia’s future policy direction uncertain. The RBA’s Deputy Governor noted that November’s inflation was expected but hinted at no imminent interest rate cuts.
In technical analysis, AUD/JPY stays above the 100-EMA at 100.79 and the 20-period SMA at 104.35, indicating a bullish trend. With RSI at 62.04, momentum remains stable without indicating overbuying.
The Bollinger Bands suggest increasing volatility, with the current price targeting the upper band at 106.05. A close above could prolong the upward move, while resistance might lead to consolidation towards the middle band.
Key Influencing Factors
Key factors affecting the Yen include Japan’s economic performance, BoJ policies, bond yield differentials, and broader market risk sentiment. The currency is often perceived as a stable investment during volatile times.
The AUD/JPY cross is seeing some selling pressure around the 105.00 level, creating a tense situation for traders. While the longer-term technical trend remains upward, the immediate challenge comes from a strengthening Japanese Yen. This is driven by growing conviction that the Bank of Japan will continue its policy normalization path started back in 2024 and 2025.
For the Yen, the focus is on wage growth, which is fueling expectations for Bank of Japan action. After we saw the historic wage increases in the 2025 spring negotiations, recent December data showed nominal cash earnings rose 2.5% year-over-year, beating forecasts. This sustained pressure makes another small rate hike in the first quarter more likely, providing underlying support for the JPY.
On the Australian side, uncertainty lingers despite the Reserve Bank of Australia’s firm stance against near-term rate cuts. The latest quarterly CPI data for Q4 2025, released last week, came in at 3.9%, slightly above expectations and showing inflation remains sticky. This confirms the RBA’s cautious position but isn’t enough to drive a strong rally against a hawkish BoJ narrative.
Given these opposing forces, volatility is the key theme, as suggested by the widening Bollinger Bands. Traders should consider using options to play this uncertainty, such as purchasing straddles or strangles ahead of the next major inflation reports from either country. This strategy allows for profiting from a large price swing in either direction without needing to predict the outcome.
For those maintaining a bullish bias in line with the long-term trend, buying call options with a strike price above the 106.05 resistance level could be a viable strategy. This captures potential upside while defining the maximum risk to the premium paid. Using the 102.65 support level as a guide for setting stop-losses or purchasing protective puts is also a prudent risk management technique.
We should also watch the narrowing yield differential between Australian and Japanese 10-year government bonds, a trend that has been developing since late 2025. While the spread still significantly favors the AUD, its gradual compression is a headwind for the pair. Any acceleration in this trend could signal that the short-term selling pressure is gaining a more solid footing.
