AUD/JPY climbed more than 1.20% on Wednesday after Australia’s inflation report led markets to expect further Reserve Bank of Australia rate rises. The pair was trading near 111.38 at the time of writing.
The rally strengthened after price broke the prior yearly high at 110.79 and cleared 111.00. The RSI is now above 70, with traders watching 80 as the next “extreme” zone.
Technical Levels And Momentum
If price breaks the yearly high at 111.47, it could move toward 112.00. With the ATR at 111 pips, the next resistance levels are 112.49 and then 113.00.
If the pair drops back below 111.00, it may retest the 10 February cycle high at 110.67. Further downside levels include the 20-day SMA at 109.34 and a support trendline from the November 2025 lows near 108.00.
The yen’s value depends on Japan’s economic performance, Bank of Japan (BoJ) policy, bond yield spreads, and overall risk sentiment. The BoJ’s ultra-loose policy from 2013 to 2024 weakened the yen. Since 2024, the start of policy unwinding has offered some support and narrowed the US–Japan 10-year yield gap.
After the strong push above 111.00, near-term momentum looks bullish for AUD/JPY. The jump followed Australia’s CPI report, which showed quarterly inflation at 1.2%, well above our 0.8% forecast. As a result, markets are now pricing in at least one more RBA rate hike this year.
The technical setup also supports buying on strength. The RSI has not yet reached the very overbought levels seen in similar 2024 moves. One approach is to consider call options with strikes around 112.00 or 112.50, aiming for further gains over the next two to three weeks. In a strong trend, pullbacks toward 111.00 are often treated as buying opportunities.
Risk And Positioning Considerations
Even so, the Japanese yen can reverse sharply. Last week, BoJ officials signaled increasing discomfort with a weak yen, which could point to faster policy normalization. The ongoing exit from ultra-loose policy—underway since 2024—remains the biggest risk to this uptrend.
To limit this risk, derivatives can help define exposure. For example, bull call spreads can reduce upfront cost versus buying the pair outright. Implied volatility on AUD/JPY options rose to a six-month high of 14.2% this morning, highlighting the tension between the two central banks. Another prudent hedge is buying protective puts with strikes below the key 110.67 support level.
For now, fundamentals still support the Australian dollar. Rate differentials remain a major driver: the spread between Australian and Japanese 10-year government bonds is about 385 basis points, the widest since Q3 2025. If broader risk sentiment stays positive, the carry trade appeal should continue to weigh on the safe-haven yen.
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