The AUD/JPY currency pair rose as the Japanese Yen weakened after Japan announced new cabinet ministers. Sanae Takaichi was elected Japan’s Prime Minister with 237 votes in the Lower House, exceeding the required majority. During European trading hours, the AUD/JPY was around 98.30, recovering its earlier losses and achieving its third straight session of gains. Japan’s Chief Cabinet Secretary, Seiji Kihara, introduced the new cabinet, naming Satsuki Katayama as Finance Minister, Ryosei Akazawa as Trade and Industry Minister, Minoru Kiuchi as Economic Revitalization Minister, Kimi Onoda as Economic Security Minister, and Toshimitsu Motegi as Foreign Minister. Meanwhile, the AUD may rise due to optimism about a potential breakthrough in the US-Australia trade agreement.

Trade Agreements and Economic Impact

An $8.5 billion agreement was signed between US President Donald Trump and Australian Prime Minister Anthony Albanese. Both nations committed at least $1 billion each for mining and processing projects. Additionally, eased US-China trade tensions could benefit the AUD, as President Trump expects to reach a “fair deal” with China’s President during their upcoming meeting. The AUD/JPY is moving towards 98.50, signaling a clear weakness in the Japanese Yen following the establishment of a new government. The appointment of Prime Minister Sanae Takaichi has raised expectations that the Bank of Japan will continue its ultra-loose monetary policy. Historical data shows that the yen sharply depreciated during the early days of Abenomics in 2013, and this new political environment could lead to a similar, though smaller, trend. The growing policy difference between Australia and Japan is clear, which is likely to continue boosting the AUD. Japan’s core inflation for September 2025 was reported at just 1.9%, only slightly meeting the central bank’s target. This gives the new Finance Minister, Satsuki Katayama, little reason to support tighter policies. On the other hand, the Reserve Bank of Australia is keeping rates steady to tackle its own inflation, making the Australian dollar more appealing. For the AUD, the recent $8.5 billion critical minerals agreement with the United States offers significant long-term support. Australia provides more than half of the world’s lithium, and this deal secures a major customer outside of China, enhancing the AUD’s value. We see this as a structural change that will support the currency in the coming months.

Potential Challenges and Strategy Recommendations

The easing of trade tensions between the US and China is also a significant positive for the AUD. China remains Australia’s largest trading partner, making up about 32% of our exports; any signs of stability are advantageous for demand. A successful meeting between President Trump and President Xi could boost commodity prices and, in turn, the Aussie dollar. In the upcoming weeks, consider buying AUD/JPY call options with strike prices around 99.00 and 100.00. This strategy allows investors to take advantage of expected upward movement while minimizing risk in case the political situation in Japan changes unexpectedly. Implied volatility is moderate, making option premiums reasonably priced. Traders should stay cautious, as any hawkish comments from Japan’s new cabinet could lead to a sudden reversal. Additionally, failure in US-China trade negotiations could harm the AUD. Therefore, it is wise to use defined-risk strategies, like options, instead of holding naked futures positions in this market climate. Create your live VT Markets account and start trading now.

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