Insights 
VT 
The AUD/JPY pair revisited the yearly high near 101.60 during the late Asian trading session as the Australian Dollar strengthens post-positive Australian labour data. The Australian Dollar performed well against other major currencies, particularly the Swiss Franc.
The Australian Bureau of Statistics noted the creation of 42.2K jobs, exceeding the forecast of 20K and previous revised figures. The unemployment rate fell to 4.3%, undercutting expectations of 4.4% and prior data at 4.5%.
Improved Labour Conditions
Improved labour conditions often lead traders to reconsider expectations of further rate cuts by the Reserve Bank of Australia (RBA). Inflationary pressures persist, with the CPI rising by 1.3% in the third quarter, compared to 0.7% in the second quarter.
Simultaneously, the Japanese Yen remains steady as the Bank of Japan (BoJ) is unlikely to change its loose monetary stance. This aligns with Japan’s new Prime Minister Sanae Takaichi’s preference for fiscal expansion.
Economic indicators suggest that a rise in employment typically spurs consumer spending and economic growth, positively affecting the Australian Dollar. A decline in these figures, however, would be unfavourable.
We are seeing the AUD/JPY pair pushing its 2025 highs around 101.60, driven by a surprisingly strong Australian jobs report for October. The creation of 42,200 jobs, more than double the forecast, reinforces our view that the Reserve Bank of Australia will hold its cash rate steady at 4.35%. This tight labor market, reminiscent of the conditions we saw back in late 2023, is keeping rate cut expectations off the table for now.
Monetary Policy Divergence
On the other side of this trade, the Japanese Yen remains weak as the Bank of Japan shows no urgency to tighten policy further. Even after finally ending its negative interest rate policy back in March 2024, the BoJ has been extremely cautious, citing the need for sustainable wage growth. With core inflation in Japan hovering around 2.5% for much of this year, a level similar to late 2024, the central bank has the justification it needs to remain accommodative.
For us in the derivatives market, this growing policy divergence makes the AUD/JPY carry trade increasingly attractive. The strategy of borrowing in low-yielding Yen to invest in the higher-yielding Aussie dollar looks set to continue paying off. We should consider buying call options on AUD/JPY to capitalize on further upside, or selling out-of-the-money puts to collect premium while expressing a bullish-to-neutral view.
Looking ahead in the coming weeks, the key data points to watch will be Australia’s next monthly CPI indicator and Japan’s wage growth figures. Any sign of inflation re-accelerating down under could solidify expectations for another RBA rate hike, pushing the pair higher. Conversely, a surprise uptick in Japanese wage growth or a hawkish shift in BoJ language could quickly unwind this trade.
