AUD/JPY Price Forecast: Bearish bias holds under the 100-day SMA as the pair eases below 111.50

Selling pressure takes AUD/JPY towards 111.25 as Thursday’s European session gets under way.
A short-lived recovery remains possible despite the cross’s bearish tone, as the RSI stays above its midpoint.
While 110.40 marks the nearest support, the initial resistance stands at 111.45.

AUD/JPY remains under pressure near 111.25 in early European trading on Thursday. With Tokyo’s Consumer Price Index (CPI) inflation figures and the Bank of Japan (BoJ) interest rate announcement due on Friday, caution could set in across markets later in the day.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

An unchanged interest rate of 1.25% is expected at the BoJ’s October policy meeting. Reuters reports also suggest that the Japanese central bank is likely to announce at this meeting that its 2% “underlying inflation” objective has been achieved.

For further direction, traders will watch the BoJ press conference for possible indications of when, and how quickly, additional rate increases might follow. Hawkish signals from BoJ officials could strengthen the Japanese Yen (JPY) against the Australian Dollar (AUD).

Providing a potential cushion for the Aussie, however, stronger Australian CPI inflation figures have reinforced expectations of rate increases by the Reserve Bank of Australia (RBA). This could help contain the currency’s decline.

According to the ASX RBA Rate Tracker, markets now assign nearly 82% odds to an increase in interest rates to 4.85% at the next RBA Board meeting. That compares with 62% before the release of Australia’s CPI figures.

Could December guide the Yen as BoJ assesses resilience to higher rates?

For the currency market, December’s policy signals matter more than Friday’s decision, according to Commerzbank analysts. Ahead of the Bank of Japan’s Friday morning meeting, they observe that “few expect the meeting itself to deliver a rate change.” Expectations point to the overnight rate “remaining at 1.25%, and none of the economists surveyed by Bloomberg expects a hike this week.” They contend that, for FX markets, “the more important question will therefore be what the BoJ signals about December,” with current pricing implying “an around 80% probability of a rate hike by then, in line with our own expectation that the BoJ will raise the policy rate to 1.5%.” Explaining that assessment, Commerzbank says “recent BoJ communication, alongside the economic backdrop, increasingly suggests that the next step towards policy normalization is approaching.”

The analysts point out that “additional support for this view came from the BoJ's semi-annual report on risks to the financial system.” Despite being “hardly the most obvious source of monetary policy signals,” that report “suggests that higher rates should remain manageable for Japan's financial system.” The BoJ’s stress test concludes that “even a rise in the policy rate to 2% should not pose major problems for Japanese banks and companies,” while observing that “the increase to 1.25% has already been absorbed without significant disruption, as has the rise in longer-term government bond yields.” Importantly, Commerzbank highlights the BoJ’s clarification that “the 2% assumption is not a forecast but merely part of the stress test scenario.” Even so, the analysts consider that “the message for FX markets is noteworthy: financial stability does not appear to be a binding constraint on further policy normalization.” Thus, although “Friday itself may therefore provide only limited fresh momentum for the yen,” Commerzbank maintains that its “structurally constructive view on the Japanese currency remains intact.”

Does Warsh’s firm 2% inflation commitment keep Dollar bulls on watch?

Dollar support and pressure on risk-sensitive assets remain the market implications of Warsh’s firmly hawkish press conference. His FXS Speechtracker score of 7/10 matches the historical average, underscoring a consistent stance against inflation. By stressing that “ensuring price stability is not about a fixed date on a calendar”, he points to an approach guided by data and outcomes. References to “new monetary medicine”, September’s withdrawal of accommodation and confidence that inflation expectations are “going the right way” towards the 2% PCE target reinforce that message. His repeated pledge of “no ifs and or buts, we will deliver price stability” and dismissal of any “soft inflation target” signal a firm willingness to tighten policy as required. Such a backdrop typically favours the Dollar while weighing on risk-sensitive assets, especially technology and AI, where Warsh says interest rates are now having a clear impact.

A +14.39-point surge took the FXS Fed Sentiment Index to 141.89, placing it firmly in hawkish territory and marking a substantial shift towards tighter policy expectations against the established baseline. Alongside the steady FXS Speechtracker reading of 7/10, the increase suggests that markets are adjusting to a more aggressive Fed response. As investors factor in a sustained determination to curb inflation, that reassessment has implications for a stronger Dollar and higher yields.

Technical Outlook: Can AUD/JPY break above the 100-day SMA?

A mildly bearish outlook persists on the daily AUD/JPY chart, with the cross trading below both the 100-day simple moving average (SMA) and the upper Bollinger band. Nevertheless, the Bollinger middle band continues to provide support. At 55, the 14-day Relative Strength Index (RSI) indicates that momentum is recovering without becoming overstretched, within a broader corrective phase.

The Bollinger middle band near 110.40 provides the first downside support, with the psychological 110.00 mark next in focus. If that level gives way, the decline could extend towards the lower Bollinger band around 109.35, where a further pullback in the pair could attract stronger buying interest.

For gains to extend, AUD/JPY first faces resistance at the upper Bollinger band of 111.45 and then the 100-day SMA at 112.00. Together, these levels constrain the upside. A sustained move above the latter could open the way for a rally towards the 18 August high of 113.61.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Japanese Yen: Frequently Asked Questions

Which factors shape the Japanese Yen’s value?

Among the world’s most actively traded currencies, the Japanese Yen (JPY) draws its broad direction from Japan’s economic performance. More specific influences include Bank of Japan policy, the gap between Japanese and US bond yields, and traders’ appetite for risk, alongside other factors.

Why do Bank of Japan decisions matter for the Japanese Yen?

Currency control forms part of the Bank of Japan’s mandate, making its actions an important influence on the Yen. At times, the BoJ has intervened directly in foreign exchange markets, usually to weaken the currency. Political concerns among Japan’s principal trading partners, however, discourage frequent intervention. Between 2013 and 2024, the BoJ’s ultra-loose monetary stance widened the policy divergence with other major central banks, leading the Yen to lose value against its main currency peers. The more recent, gradual withdrawal of that ultra-loose stance has offered the Yen some support.

What does the US–Japan bond yield gap mean for the Japanese Yen?

By maintaining ultra-loose monetary policy over the past decade, the BoJ moved further apart from other central banks, notably the US Federal Reserve. That divergence helped widen the yield gap between 10-year US and Japanese bonds, benefiting the US Dollar relative to the Japanese Yen. The gap is now narrowing as the BoJ’s 2024 decision to move gradually away from ultra-loose policy coincides with interest rate reductions by other major central banks.

Why does market risk sentiment influence the Japanese Yen?

Investors often regard the Japanese Yen as a safe-haven asset. During periods of market stress, its perceived reliability and stability make them more inclined to allocate funds to the Japanese currency. As a result, turbulent conditions are likely to lift the Yen against currencies viewed as riskier investments.