The AUD/JPY currency pair dropped to around 106.10 during the early European session on Friday. Japan’s finance minister announced that all options, including direct currency intervention, are available to support the Yen. Japan’s Prime Minister Sanae Takaichi may advocate for more spending policies, which could also impact the Yen. Takaichi plans to dissolve parliament next week and call for a snap election, which may influence the currency’s value.

Technical Analysis And Indicators

In the charts, AUD/JPY remains above the rising 100-day EMA at 101.52, showing a bullish trend. The pair is trading between Bollinger Bands at 106.52 and 105.21, indicating strong buying interest. The RSI is at 66, suggesting strong momentum. If AUD/JPY closes above the upper Bollinger Band, it may see further gains. However, a pullback could lead to consolidation in the support range between 105.21 and 103.90. The overall technical outlook looks good for buying dips as long as the EMA remains upward. The Yen’s value is influenced by the Bank of Japan’s policies, bond yield differences, and overall risk sentiment. Recent adjustments in the Bank of Japan’s policies have also helped the Yen against major currencies. The AUD/JPY pair is currently around 106.10, facing immediate resistance around 106.50. This resistance is supported by warnings from Japanese officials about possible intervention to support the Yen. Traders should be aware of this potential risk over the coming weeks.

Trading Strategies And Risks

The overall trend remains positive, with the pair staying well above its 100-day moving average, a key support level. We suggest buying call options during any dips towards the 105.20 area. This approach allows traders to capture potential gains while managing risks if fears of intervention arise. The main risk is a sudden action from the Bank of Japan, which oversees currency control. Thus, holding some out-of-the-money put options can provide a low-cost hedge against a sharp decline. This strategy protects long positions from rapid Yen strengthening triggered by official warnings. We’ve seen this happen before, especially during interventions in late 2022 and again in 2024. In those situations, verbal warnings from the Ministry of Finance led to sharp, multi-day declines in Yen pairs before the underlying uptrend resumed. For instance, USD/JPY fell nearly 6% in just one day in October 2022 after intervention was confirmed. Fundamentally, the difference in policies still supports a higher AUD/JPY. Australia’s recent quarterly CPI report showed inflation at 3.1%, above the Reserve Bank of Australia’s target, while Japan’s core inflation remains stubbornly under 2%. This interest rate gap is a key reason we continue to recommend buying on dips. The tension between a strong technical trend and the risk of intervention is likely to heighten implied volatility. Traders may consider straddles or strangles if they expect significant price movements but are uncertain about the direction. This strategy can profit from a breakout above 106.50 or a sharp drop below 105.00, taking advantage of the uncertainty. Create your live VT Markets account and start trading now.

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