Insights 
VT 
The AUD/JPY pair rises to around 98.80 during Wednesday’s early European session. The Japanese Yen weakens against the Australian Dollar following the election of Sanae Takaichi as Japan’s Prime Minister, amid expectations of a more expansive fiscal policy.
Technically, AUD/JPY maintains a positive outlook above the 100-day EMA. The 14-day RSI supports this momentum, positioned above 55.0, indicating further bullish potential. The next resistance is at 99.50, and a sustained rise may push to the 100.00 level. However, support is at 97.25, with a further decline possible to 96.86 and the 96.50-96.45 range.
Yen’s Economic Influences
The Japanese Yen is influenced by Japan’s economic performance and the Bank of Japan’s policies, including the contrasting interest rate landscape with the US. Between 2013 and 2024, the Yen depreciated due to divergent monetary policies. However, recent adjustments have lent some strength to the Yen.
The differential between US and Japanese bond yields impacts the Yen, with BoJ’s past policies widening this gap. Recent shifts in BoJ’s policy and global interest rate trends are narrowing the yield differential. Moreover, in times of market stress, the Yen is often favoured as a safe-haven asset, which can enhance its value against riskier currencies.
As we look at this analysis from earlier in the month, the positive bias above 98.50 has proven correct. The AUD/JPY cross has indeed pushed higher, trading this week around 99.70 and testing the significant 100.00 psychological barrier. This upward move has been fueled by recent data showing Australian inflation ticking up to 3.8% in the third quarter, increasing pressure on the Reserve Bank of Australia to maintain its hawkish stance.
The forecast for a weaker yen under the new Prime Minister has also materialized, adding fuel to this rally. Prime Minister Takaichi’s administration unveiled a ¥20 trillion fiscal stimulus package last week, a move aimed at boosting the domestic economy but which also increases Japan’s massive debt load. This policy of fiscal expansion continues to weigh on the yen, especially as the Bank of Japan has signaled it will only unwind its loose monetary policy at a very gradual pace.
Strategy for Market Participation
Given this sustained momentum, we should consider buying call options to profit from a decisive break above 100.00. Implied volatility for AUD/JPY has remained moderate, currently around 9.5%, making November and December call options with a 100.50 strike price a cost-effective way to gain upside exposure. This allows us to participate in the rally while strictly defining our maximum risk to the premium paid for the options.
However, we must also hedge against a potential failure at this key resistance level, which has capped gains multiple times since mid-2024. Global risk sentiment could shift quickly, strengthening the safe-haven yen and triggering a pullback towards the former support level of 97.25. To protect our positions, we can purchase put options with a strike price around 98.00, providing a floor for our long exposure in case the market reverses.
