AUD/JPY climbed back above the mid-108.00s in Asian trading on Monday. This ended a four-day decline after the pair hit a nearly two-week low on Friday. The rebound followed weaker Japanese data, which pressured the Yen.
Japan’s Cabinet Office reported that GDP rose 0.1% in Q4 2025, after a 0.7% drop in the prior quarter. The figure missed forecasts and lowered expectations for an early Bank of Japan rate hike. That, in turn, weakened the JPY.
The Australian Dollar stayed supported after the Reserve Bank of Australia kept a hawkish tone. The RBA Governor said rates could rise again if inflation becomes entrenched. An RBA official added that inflation is likely to stay above the 2%–3% target for some time, and that the labour market has stabilised.
Hopes for more Chinese fiscal and monetary support also lifted demand for the AUD. However, gains in AUD/JPY may be limited by talk of possible Japanese action to curb JPY weakness, and by expectations for a Bank of Japan rate hike later this year.
We see a clear policy divide between Australia and Japan. That makes AUD/JPY attractive. Japan’s weak 0.1% GDP growth in Q4 2025 has pushed back expectations for any near-term BOJ hike. This makes holding the higher-yielding Aussie versus the Yen more appealing.
The RBA is also keeping a firm stance. Q4 inflation last year came in at 3.8%, still well above the target band. This supports the Aussie. For traders, it strengthens the case for buying AUD/JPY call options to benefit from a potential rise, while limiting downside risk.
Japan’s economy is soft, but core inflation is still 2.5%. That keeps the chance of a BOJ hike later this year alive. At the same time, hopes for Chinese support—especially after China’s central bank cut a key lending rate last month—are giving the Australian dollar another boost. Overall, this backdrop points to further gains, though the path may be choppy.
We also need to watch for possible intervention from Japanese authorities to support the Yen. They used this approach in 2022 when USD/JPY broke key levels. With AUD/JPY now above 108.00, the pair is moving into a zone that may worry officials. Levels near 110 could trigger a response. For that reason, using options to define risk, or placing tight stop-losses on futures positions, looks prudent in the weeks ahead.
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