The AUD/JPY currency pair softened to approximately 106.10 during the early European session on Friday. Japan’s finance minister has stated that all measures, including direct currency intervention, are on the table to support the Yen.
Japanese Prime Minister Sanae Takaichi may push for more fiscally expansionist policies, which could impact the Yen. Takaichi plans to dissolve parliament next week and call a snap election, which could influence the currency.
Technical Analysis And Indicators
In chart analysis, AUD/JPY remains above the rising 100-day EMA at 101.52, maintaining its bullish trend. The currency pair is positioned between Bollinger Bands at 106.52 and 105.21, indicating strong buying interest, with its RSI at 66 suggesting robust momentum.
A close above the upper Bollinger Band could lead to further gains for AUD/JPY, while a retreat might result in a consolidation towards the support range between 105.21–103.90. The broader technical outlook appears favourable for dip-buying as long as the EMA maintains an upward slope.
Factors driving the Japanese Yen include the Bank of Japan’s policy, bond yield differentials, and broader risk sentiment. Recent adjustments in the BoJ’s policies have also supported the Yen against major currencies.
The AUD/JPY cross is showing strength, trading around 106.10, but we see immediate resistance near 106.50. This cap is reinforced by warnings from Japanese officials about intervening to support their currency. Traders should be cautious of this two-way risk in the coming weeks.
Trading Strategies And Risks
The underlying trend remains bullish, with the pair holding well above its 100-day moving average, a key support level. We believe buying call options on any dips toward the 105.20 area could be a good strategy. This allows for capturing potential upside while defining the risk if intervention fears materialize.
The primary risk is a sudden move by the Bank of Japan, which has a mandate for currency control. Therefore, holding some out-of-the-money put options can serve as a cheap hedge against a sharp downturn. This protects long positions from the kind of rapid yen strengthening that official warnings can trigger.
We remember seeing this happen before, particularly during the interventions of late 2022 and again in 2024. In those instances, verbal warnings from the Ministry of Finance often caused sharp, multi-day drops in yen crosses before the underlying uptrend resumed. For example, USD/JPY dropped nearly 6% in a single day in October 2022 after intervention was confirmed.
Fundamentally, the policy divergence still favors a higher AUD/JPY, providing a strong tailwind. Australia’s latest quarterly CPI report showed inflation at 3.1%, still above the RBA’s target, while Japan’s core inflation remains stubbornly below 2%. This interest rate differential is a key reason we continue to favor buying on dips.
This tension between a strong technical trend and intervention risk is likely to increase implied volatility. Traders could consider buying straddles or strangles if they expect a significant price move but are unsure of the direction. This strategy profits from a breakout above 106.50 or a sharp drop below 105.00, capitalizing on the uncertainty itself.
