The AUD/JPY currency pair appreciated as the Japanese Yen weakened after the announcement of Japan’s new cabinet ministers. Sanae Takaichi became Japan’s Prime Minister, receiving 237 votes in the Lower House, surpassing the required majority. During the European hours, the AUD/JPY traded around 98.30, recovering its daily losses and marking its third consecutive session of gains.

Japan’s Chief Cabinet Secretary, Seiji Kihara, announced the cabinet changes, naming Satsuki Katayama as Finance Minister, Ryosei Akazawa as Trade and Industry Minister, Minoru Kiuchi as Economic Revitalization Minister, Kimi Onoda as Economic Security Minister, and Toshimitsu Motegi as Foreign Minister. Meanwhile, the AUD could gain from optimism surrounding a potential breakthrough in the US-Australia trade agreement.

Trade Agreements and Economic Impact

An agreement worth USD 8.5 billion was signed between US President Donald Trump and Australian Prime Minister Anthony Albanese. Both countries pledged at least USD 1 billion each for mining and processing projects. Furthermore, the easing of US-China trade tensions could also support the AUD, as US President Trump anticipated reaching a “fair deal” with China’s President during their upcoming meeting.

The AUD/JPY cross is pushing toward 98.50, and we see this as a clear signal of Japanese Yen weakness following the formation of a new government. The appointment of Prime Minister Sanae Takaichi is creating expectations that the Bank of Japan will maintain its ultra-loose monetary policy. We remember how the yen depreciated sharply during the early days of Abenomics in 2013, and this new political landscape could trigger a similar, albeit smaller, trend.

The policy divergence between Australia and Japan is becoming more pronounced, which should continue to fuel this rally. Japan’s core inflation for September 2025 was just reported at 1.9%, barely hitting the central bank’s target and giving the new Finance Minister, Satsuki Katayama, little reason to advocate for tighter policy. In contrast, the Reserve Bank of Australia is holding rates steady to combat its own inflation, making the Aussie dollar a more attractive currency to hold.

For the Australian dollar, the new $8.5 billion critical minerals agreement with the United States provides a powerful, long-term boost. Australia currently supplies over half of the world’s lithium, and this deal secures a major buyer outside of China, strengthening the AUD’s fundamental value. We view this as a structural shift that will support the currency for months to come.

Potential Challenges and Strategy Recommendations

Furthermore, the easing of trade tensions between the US and China is a significant positive for the AUD. China is still Australia’s largest trading partner, accounting for roughly 32% of our exports, so any sign of stability is a good sign for demand. A successful meeting between President Trump and President Xi would likely boost commodity prices and, by extension, the Aussie dollar.

In the coming weeks, we should consider buying AUD/JPY call options with strike prices around 99.00 and 100.00. This allows for participation in the expected upside while strictly defining the risk if the political situation in Japan changes unexpectedly. Implied volatility remains moderate, making option premiums reasonably priced for now.

Traders should remain cautious, as any unexpectedly hawkish comments from Japan’s new cabinet could cause a sharp reversal. Additionally, a failure in the US-China trade talks would negatively impact the AUD. Therefore, using defined-risk strategies like options is preferable to holding naked futures positions in this environment.

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