During the early hours of trading in Europe on Tuesday, the AUD/JPY pair is hovering around 110.20. Traders are keenly anticipating a speech from Bank of Japan (BoJ) Governor Kazuo Ueda later in the day that may shed light on future interest rate movements.
According to several insiders, the BoJ might suggest later this month that underlying inflation is nearing its 2% goal. This would indicate the bank’s readiness to consider increasing interest rates again in the near future.
However, after raising rates in September, some policymakers at the BoJ are reportedly hesitant about implementing another hike just yet. They may want to observe additional economic data and assess the impact of previous rate increases on domestic financial conditions before proceeding.
On the Australian side, money markets are indicating that the Reserve Bank of Australia (RBA) will likely increase rates during its November meeting. Chances of a rate hike have dipped to around 20%, as shown by data from LSEG.
Japan and Korea inflation data keep BoJ and BoK on policy alert
Analysts at MUFG/BTMU observe that recent inflation data from both Korea and Japan have captured market attention, particularly regarding underlying price pressures, despite some differences in headline figures. Inflation in Korea has eased to 2.9% year-over-year in September, aligning with consensus estimates and down from 3.1% year-over-year, indicating a slight moderation, though still significant enough to remain on the radar.
Conversely, Japan’s inflation data surprised analysts with higher-than-expected readings. MUFG/BTMU points out that “headline Tokyo CPI, which is a leading indicator of nationwide inflation, rose to 2.7% year-over-year in September, surpassing the anticipated 2.5% and rising from 1.9% in August.” Notably, “core Tokyo CPI, excluding fresh food and energy, increased to 3.0% year-over-year, above the consensus of 2.5% and the 2.0% from August, marking its highest level under the Takaichi administration.” In light of these findings, MUFG/BTMU suggest that both the BoK and the BoJ remain vigilant regarding inflation and the potential need for policy tightening, keeping them focused on their policy paths and, in turn, impacting regional currency dynamics.
Technical Analysis: AUD/JPY maintains a bearish outlook below the 100-day SMA
Looking at the daily chart, AUD/JPY seems to be holding a bearish sentiment in the short term, as it remains below both the Bollinger middle band (20-period simple moving average) and the 100-day moving average. The pair is also being restricted by the upper Bollinger band, with the Relative Strength Index (14) around 40.8 indicating a neutral-to-weak position, suggesting that while there’s selling pressure, the market isn’t in an oversold state just yet.
Resistance is initially observed near the Bollinger middle band at 110.60, with a stronger barrier identified at the upper Bollinger band approximately at 112.15. If buying momentum breaks through this level, it could lead towards the 100-day moving average around 112.55.
On the downside, significant support is seen at the psychological level of 110.00, followed by the lower Bollinger band around 109.10. A decisive break below these levels would likely open the door for further declines towards the low of 108.71 recorded on October 1.
(This technical analysis was created with assistance from an AI tool.)
(This story was updated at 05:15 GMT on October 6 to clarify that significant support is at the 110.00 psychological level, not 100.00.)
Japanese Yen FAQs
The Japanese Yen (JPY) ranks among the most actively traded currencies globally. Its value is largely influenced by the state of the Japanese economy, but more specifically, factors such as the Bank of Japan’s policy, differences between Japanese and US bond yields, and prevailing risk sentiment among investors.
The Bank of Japan plays a crucial role in controlling the Yen’s value, and its decisions are significant for the currency. The BoJ has occasionally intervened in currency markets to lower the Yen’s value, although such actions are infrequent due to the political sensitivities involved. The ultra-loose monetary policy adopted from 2013 to 2024 led to a decline in the Yen’s value against its main currency counterparts, but more recently, a gradual unwinding of this policy has provided some support to the currency.
In the past decade, the BoJ has maintained an ultra-loose monetary policy, resulting in a growing divergence in policy compared to other central banks, especially the US Federal Reserve. This situation has widened the gap between 10-year US and Japanese bond yields, favoring the US Dollar against the Yen. However, the BoJ’s decision in 2024 to gradually move away from this ultra-loose stance, alongside interest rate reductions in other major central banks, is beginning to narrow this gap.
Often regarded as a safe-haven asset, the Japanese Yen tends to attract investors during times of market instability, due to its perceived reliability and stability. Unstable market conditions usually bolster the Yen’s value relative to other currencies viewed as riskier.
