AUD/JPY moved back above the mid-108.00s in Asian trading on Monday, ending a four-day slide after hitting a nearly two-week low on Friday. The move followed weaker Japanese data that weighed on the Yen.
Japan’s Cabinet Office said GDP rose 0.1% in Q4 2025, after a 0.7% fall in the prior quarter. The result missed forecasts and reduced expectations for an early Bank of Japan rate rise, which weakened the JPY.
Rba Hawkishness Supports The Aussie
The Australian Dollar stayed supported after the Reserve Bank of Australia maintained a hawkish stance. The RBA Governor said rates could rise again if inflation becomes entrenched, while an RBA official said inflation is expected to remain above the 2%–3% target for some time and that the labour market has stabilised.
Expectations of further Chinese fiscal and monetary support also helped demand for the AUD. Limits to further AUD/JPY gains included talk of possible Japanese action to slow JPY weakness and expectations for a Bank of Japan rate rise later this year.
We are seeing a clear policy split between Australia and Japan, creating a prime opportunity in the AUD/JPY cross. Japan’s disappointing 0.1% GDP growth for the final quarter of 2025 has pushed back expectations for any immediate Bank of Japan rate hike. This situation makes holding the higher-yielding Aussie against the Yen increasingly attractive.
The Reserve Bank of Australia is maintaining its firm stance, especially after we saw fourth-quarter inflation last year come in at 3.8%, still well above their target band. This hawkishness supports the Aussie dollar’s strength. For traders, this reinforces the case for buying AUD/JPY call options to profit from expected gains while capping downside risk.
Key Risks And Trade Management
While Japan’s economy is struggling, we note that core inflation is still running at 2.5%, keeping the possibility of a future rate hike on the table for later this year. In the background, continued hopes for Chinese economic support, especially after their central bank cut a key lending rate last month, are providing another lift for the Australian dollar. This mix of factors favors a continued, albeit potentially bumpy, rise for the pair.
We must remain cautious about potential intervention from Japanese authorities to strengthen the Yen, a strategy they used back in 2022 when USD/JPY breached key levels. The current AUD/JPY rate above 108.00 is entering a territory that will make officials uncomfortable, with levels approaching 110 likely to trigger a response. Therefore, using options to define risk or setting tight stop-loss orders on futures positions is a prudent approach in the coming weeks.
