AUD/JPY rose to around 109.60 in early European trading on Tuesday, pushing above 109.50. Buying picked up as concerns about Japan’s public finances continued and as markets expected more economic stimulus.
The Australian Dollar is also finding support. Investors think the Reserve Bank of Australia (RBA) may keep a tightening bias. Recent data has strengthened the view that the RBA will stay focused on inflation.
Australian CPI Outlook
Markets are waiting for Australia’s Consumer Price Index (CPI) report on Wednesday. Headline CPI is expected at 3.7% year over year in January, down from 3.8% previously. A weaker-than-expected reading could pressure the AUD.
On the daily chart, the pair is trading above the 100-period EMA, and the EMA is still sloping upward. Price is also above the middle Bollinger Band. The bands are narrowing, which suggests lower volatility and a slight upward bias.
RSI is at 59.95 and moving above its midpoint. This signals positive momentum without showing overbought conditions. Resistance sits near 110.60 at the upper Bollinger Band. Support is around 109.00 at the middle band, then 107.37 at the lower band.
AUD/JPY is holding firm above 109.50, and there are reasons this strength could continue. Worries about Japan’s fiscal outlook are increasing, especially after Prime Minister Takaichi’s administration outlined a ¥15 trillion stimulus package aimed at lifting domestic consumption. More government spending is likely to keep the Yen under pressure.
Carry Trade Setup
On the Australian side, the RBA’s hawkish tone is helping the currency. Last week’s jobs report showed the unemployment rate unexpectedly falling to 3.6%. This supports the idea that the central bank may need to keep a tightening bias. It also fits with the steady economic resilience seen in recent months.
The pair saw sharp moves in the second half of 2025 as carry trade demand surged, and the current backdrop looks similar. During that period, AUD/JPY climbed more than 8% as the interest rate gap widened. With the Bank of Japan reaffirming its commitment to loose policy just last month, conditions for carry trades may be improving again.
With this bullish view, traders could consider call options with a strike at or above the 110.60 resistance level. This approach targets upside while keeping risk defined if Australian CPI comes in weaker than expected. Expiration in late March or April may give the trend time to play out.
For a more conservative approach, traders could use a bull call spread to reduce upfront cost. For example, buy a call near 109.50 and sell a call near 111.00. This limits the maximum profit but can improve the overall risk-reward and helps manage short-term pullbacks.
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