AUD/JPY Price Forecast: Flatlines above 110.00, bearish outlook persists
- AUD/JPY holds steady near 110.20 in Tuesday’s early European session.
- BoJ is likely to raise its benchmark interest rate to 1.25% at its meeting on Friday.
- The negative outlook for the cross remains intact, with oversold conditions.
- The first upside barrier emerges at 112.45; the initial support level to watch is 109.35.
The AUD/JPY cross trades on a flat note around 110.20 during the early European trading hours on Tuesday. Markets might turn cautious ahead of the Bank of Japan (BoJ) interest rate decision later on Friday.
The BoJ is expected to raise its policy interest rate to 1.25%, the highest level in about 31 years, at its September policy-setting meeting on Friday. The Japanese central bank raised its benchmark interest rate to 1.0% at its recent June meeting.
Traders will keep an eye on BoJ Governor Kazuo Ueda about the pace of future rate hikes and how far the central bank could take rates under the current tightening cycle.
"A 25 bps hike is already almost fully priced," said MUFG analysts. ”For the yen to strengthen further, the BOJ will have to signal that they are planning to stick to the faster pace of hikes,” they added.
On the other hand, a hawkish stance from the Reserve Bank of Australia (RBA) keeps the possibility of further rate hikes alive, supporting the Aussie. RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected.
Markets are now pricing in nearly a 76% chance that the Australian central bank will raise the Official Cash Rate (OCR) to 4.60% at the next RBA Board meeting, according to RBA Rate Tracker.
Yen outlook firms as BoJ seen validating hawkish pricing
Analysts at Brown Brothers Harriman note that the Bank of Japan is “widely expected to raise the policy rate 25bps to 1.25% on Friday after pausing in July,” reflecting a backdrop in which “Japan underlying inflation is very close to the 2% target and the economy is running slightly above capacity.” They add that “a 50bps hike cannot be ruled out as it would help contain inflation expectations, and cap longer term JGB yields.”
Looking beyond this week’s decision, BBH highlights that “markets will look for indication that another 25bps hike is in store by year-end, and that rates can approach 2.00% over the next twelve months, as implied by the swaps curve.” In their view, the BoJ has scope to endorse that trajectory because “the policy rate is near the bottom of its estimated 1.10-2.50% neutral range,” leaving room for further tightening if the current macro backdrop persists.
Technical Analysis: AUD/JPY keeps a bearish vibe amid oversold RSI
In the daily chart, AUD/JPY remains under clear bearish pressure, holding well below the 100-day simple moving average (SMA) and the Bollinger middle band, which together suggest a market still dominated by sellers on rallies. The Relative Strength Index (14) hovers near 30, hinting at oversold conditions, but this only tempers rather than overturns the downside bias while price stays capped beneath the clustered daily averages.
On the topside, initial resistance emerges at the August 10 low of 112.45, en route to the Bollinger middle band near 112.65. Further north, the next hurdle to watch is the 100-day SMA around 112.95. The Bollinger upper band near 115.95 acts as a more distant barrier if a stronger rebound unfolds.
On the downside, the Bollinger lower band near 109.35 offers the first notable support. A decisive break below this zone would open the door to the August 3 low of 109.24, followed by the March 31 low of 108.79.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
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