Insights 
VT 
The Australian Dollar Strengthens Against The Yen
The Australian Dollar is gaining strength against the Yen due to shifting expectations around the Reserve Bank of Australia’s monetary policy. Australian CPI data revealed an increase of 1.3% quarterly, surpassing estimates of 1.1%.
Internationally, market attention is on the US-China meeting, where a favourable trade deal is anticipated. The ongoing discussions are supporting the appeal of risky assets, contributing to the current market dynamics.
A currency heat map has shown the Australian Dollar as the strongest against the Japanese Yen. The map is helpful in showing percentage changes of major currencies, using a base and quote currency system for easy comparison.
The Bank of Japan’s decision to hold its interest rate at 0.5% has weakened the Japanese Yen, causing the AUD/JPY to climb near 100.70. This move was largely anticipated, especially with the current administration favoring looser monetary policy. The 7-2 vote split, however, does signal some internal debate, but not enough to change the immediate course.
This policy stance is reinforced by recent economic data from Japan, which gives the BoJ little reason to consider tightening. The September core inflation figure, released by the Ministry of Internal Affairs and Communications, came in at 2.7%, right in line with the bank’s own forecast for the fiscal year. This, combined with modest Q3 GDP growth of only 0.4%, suggests the BoJ will continue to lag other major central banks in raising rates.
Growing Divergence In Central Bank Policies
Meanwhile, the outlook for the Australian Dollar is strengthening as the Reserve Bank of Australia appears to be moving away from any further rate cuts. This shift in sentiment is supported by the recent Q3 Consumer Price Index report from the Australian Bureau of Statistics, which showed a hotter-than-expected quarterly increase of 1.2%. With the unemployment rate also holding firm near 4.0%, the RBA has a solid case for keeping its policy tight.
For us, this growing divergence between a steady BoJ and a hawkish RBA makes the AUD/JPY carry trade attractive again. We saw this strategy work well during the 2022-2024 period when the interest rate gap first widened significantly. The current spread between the two central banks’ policy rates now stands at 3.85%, offering a compelling yield for holding long AUD positions against the JPY.
Derivative traders should consider this a bullish signal for the pair in the weeks ahead. Buying AUD/JPY call options with December or January 2026 expiries, targeting a strike price around 102.00, could be a straightforward way to position for further upside. Alternatively, selling out-of-the-money put options with a strike price below 99.00 could be a viable strategy to collect premium, assuming the policy divergence provides a floor for the pair.
We are also reminded of how global risk sentiment, once driven by events like the US-China trade talks of the late 2010s, remains a key factor. Today’s environment is focused more on stable global growth and coordinated efforts to manage inflation. This backdrop generally favors risk-on currencies like the Australian Dollar over safe-havens like the Yen.
