The AUD/JPY is currently stable around the 99.00 level, supported by easing trade tensions between the U.S. and China as Trump pulls back on tariff threats. At the same time, Japan is facing political instability and delayed interest rate hikes from the Bank of Japan (BoJ), which weakens the JPY and helps the AUD/JPY pair. The Reserve Bank of Australia’s (RBA) stronger positioning also contributes to the Australian Dollar’s resilience. This week, the pair started strong after recovering from a downturn last Friday. It has bounced back above 99.00, interrupting the decline from last week’s peak of 101.00. The JPY’s appeal as a safe haven is hurt by political turmoil, including the split between Komeito and the ruling Liberal Democratic Party (LDP), leading to uncertainty and potential delays in BoJ decisions on interest rates.

Impact Of US-China Trade Tensions

Trump’s reversal on tariffs signals a desire to lessen economic conflict with China, improving global risk sentiment, which negatively affects the JPY. The AUD remains steady even though China’s trade surplus has narrowed. In September, China’s imports and exports grew significantly from last year, although the trade surplus was smaller than expected. The Australian Dollar gains from the RBA’s prediction of higher inflation in Q3. Key factors affecting the AUD include RBA interest rates, Iron Ore prices, China’s economic performance, and Australia’s trade balance. High interest rates and strong demand from China for exports help strengthen the AUD, while lower rates and falling Iron Ore prices could weaken it. Currently, the AUD/JPY pair is steady around 99.00, recovering from last week’s sharp decline. The easing of US-China trade tensions has enhanced risk sentiment, making the high-yielding Australian Dollar more appealing than the JPY. Political issues in Japan are creating challenges for the yen, and we expect these challenges to persist. The breakdown of the longstanding LDP-Komeito coalition introduces uncertainty, likely delaying any plans for the BoJ to increase interest rates. Historically, political instability in Japan tends to weaken the yen, as it stalls monetary policy adjustments.

RBA And BOJ Economic Outlooks

Meanwhile, the RBA continues to take a hawkish stance. We are closely monitoring upcoming inflation data for the September quarter. Recent figures from the Melbourne Institute indicate inflation stubbornly remains over 4.5% annually, suggesting the RBA may need to act again, contrasting sharply with the BoJ’s inaction. The outlook for Australia’s key exports is also positive for the AUD. Recent Chinese import data showed unexpected strength, which has lifted iron ore prices back towards their August 2025 highs of over $115 per tonne. As long as demand from China remains strong, there’s a solid reason for the Australian Dollar to gain strength. Given the growing gap between the hawkish RBA and the passive BoJ, we believe the most likely direction for AUD/JPY is upward. We see value in purchasing call options with strike prices above 100.00 that expire in the next few weeks to benefit from potential price increases, while clearly managing our maximum risk. However, we must stay alert to sudden changes in market sentiment. The rollback on tariffs is encouraging, but the situation is still unpredictable, as evidenced by the 250-pip drop last Friday. To mitigate this risk, we might consider put option spreads below the 98.00 level to protect against another abrupt downturn. Create your live VT Markets account and start trading now.

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