AUD/JPY eased to about 110.75 in early European trade on Thursday, slipping below 111.00 as the yen firmed on expectations of a near-term Bank of Japan rate rise. A Reuters poll pointed to the policy rate reaching 1.25% at the September meeting and then 1.75% in Q2 2027. BoJ board member Kazuyuki Masu warned that inflation could force rapid rate increases, while Hajime Takata previously flagged the possibility of back-to-back moves and said a 25-basis-point hike is not necessarily predetermined. Separately, DBS Group Research argued policymakers should avoid large policy surprises after an unexpected hike in July 2024 triggered a sharp JPY carry-trade unwind and wider market volatility.
On the chart, the cross remains capped beneath the 100-day moving average and the Bollinger Bands’ 20-period SMA, keeping the near-term tone bearish as RSI (14) sits around 33 in oversold territory. Resistance levels are seen at 111.63 and 112.52, with a further barrier at 113.10, aligning with the 100-day MA and the Bollinger midline, while the upper band sits near 115.60. Initial support is at 110.60; a break lower would bring 110.00 into view and then 109.24.
Derivative Strategies For Further Downside
We advise derivative traders to position for further downside in the AUD/JPY cross over the coming weeks by buying put options or establishing short futures contracts. The currency pair is struggling near 110.75, pinned beneath its 100-day Simple Moving Average (SMA) which acts as a heavy ceiling. If the price breaks below the immediate support of 110.60, it opens the door for a rapid slide toward the psychological 110.00 level.
Interest Rate Shifts Drive Bearish Outlook
Our bearish outlook is heavily supported by a shifting interest rate landscape, as recent market polling indicates the Bank of Japan could raise rates to 1.25% this month and up to 1.75% by next year. Policymakers are hinting at aggressive, back-to-back interest rate hikes to combat rising domestic inflation risks. With Japan’s benchmark rate potentially rising faster than expected, the yield advantage that has historically favored the Australian Dollar is shrinking quickly.
We must prepare for extreme volatility reminiscent of the July 2024 carry-trade unwinding, which saw the yen surge and global markets stumble when the BoJ surprised investors. During that historic event, the AUD/JPY pair plummeted by nearly 19% in a matter of weeks, highlighting how violent these unwinds can be. Utilizing volatility-based derivative strategies, like put spreads, will help protect capital against these sudden market shocks.
While the daily Relative Strength Index (RSI) is hovering near oversold territory at 33, the lack of upward momentum suggests that a rebound is highly unlikely right now. We recommend setting tight stop-losses just above the first major resistance level at 111.63 to manage risk. For downside targets, traders should look toward the August low of 109.24 if the 110.00 floor fails to hold.
