The AUD/JPY pair has risen to about 98.80 in early European trading on Wednesday. The Japanese Yen has weakened against the Australian Dollar following the election of Sanae Takaichi as Japan’s Prime Minister. This change comes with expectations of a more expansive fiscal policy. From a technical standpoint, the AUD/JPY maintains a positive outlook as it stays above the 100-day EMA. The 14-day RSI indicates momentum is strong, sitting above 55.0, which suggests more upside potential. The next resistance level to watch is at 99.50, and if the pair continues to rise, it may reach the 100.00 mark. On the downside, support lies at 97.25, and further declines could lead to levels around 96.86 and the range of 96.50-96.45.

Yen’s Economic Influences

The value of the Japanese Yen is shaped by Japan’s economic health and the policies of the Bank of Japan (BoJ). The contrast in interest rates between the US and Japan has notably affected the Yen. From 2013 to 2024, the Yen weakened significantly due to differing monetary policies. However, recent changes have given the Yen some strength. The difference in bond yields between the US and Japan also plays a role in the Yen’s performance. Past policies from the BoJ have widened this gap, but recent changes and global interest trends are starting to narrow it. In periods of market uncertainty, the Yen tends to be favored as a safe-haven asset, boosting its value against riskier currencies. Looking back at the analysis from earlier this month, the positive trend above 98.50 proved accurate. The AUD/JPY pair has surged this week, trading around 99.70 and testing the important psychological barrier at 100.00. This rise has been supported by data showing Australian inflation increased to 3.8% in the third quarter, putting pressure on the Reserve Bank of Australia to keep a tough stance. The expectation of a weaker Yen under Prime Minister Takaichi has also led to this rally. Her administration recently announced a ¥20 trillion fiscal stimulus plan aimed at enhancing the domestic economy, which will also increase Japan’s large debt. This strategy of fiscal expansion continues to exert downward pressure on the Yen, especially since the BoJ has indicated that slowly unwinding its loose monetary policy will be the approach.

Strategy for Market Participation

Given the strong momentum, we should consider buying call options to benefit from a significant break above 100.00. The implied volatility for AUD/JPY is currently moderate, around 9.5%, which makes call options for November and December with a 100.50 strike price an affordable way to gain potential upside exposure. This strategy allows us to participate in the rally while clearly defining our maximum risk to just the premium paid for the options. However, we should also prepare for a potential failure at this crucial resistance level, which has limited gains multiple times since mid-2024. Global risk sentiment could shift rapidly, reinforcing the safe-haven Yen and causing a pullback to the previous support level of 97.25. To safeguard our positions, we can purchase put options with a strike price of around 98.00, which will provide protection for our long exposure if the market reverses. Create your live VT Markets account and start trading now.

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