The AUD/JPY cross trades in positive territory near 101.10 during the early European session on Monday. The Japanese Yen (JPY) weakens against the Australian Dollar (AUD) amid the uncertainty surrounding the timing of the next rate hike by the Bank of Japan (BoJ). Traders expect Japan’s new Prime Minister Sanae Takaichi will pursue aggressive fiscal spending plans and resist policy tightening.
All eyes will be on the Reserve Bank of Australia (RBA) interest rate decision on Tuesday. The RBA is widely expected to keep the cash rate on hold at 3.60% at its November meeting. This follows an unexpected rise in inflation during the September quarter, which dampened earlier market expectations for a reduction.
Technically, the constructive view of AUD/JPY remains in play as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 65.55. This suggests bullish momentum in the near term.
On the upside, the immediate resistance level for the cross emerges at 101.65, the upper boundary of the Bollinger Band. Any follow-through buying above this level could aim for 102.30, the high of November 8, 2024. Further north, the next hurdle is seen at 103.12, the high of July 24, 2024.
On the other hand, the key support level for AUD/JPY is located at the 100.00 psychological level. More bearish candlesticks below the mentioned level could pull the cross back toward 99.74, the low of October 29. The next contention level to watch is 97.84, the low of October 10.
AUD/JPY daily chart
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.