AUD/JPY fell to 104.50 after reaching 104.72, its highest point since July 2024. This drop happened as the Japanese Yen strengthened, amid concerns of possible intervention by Japanese officials. Japan’s Finance Minister, Satsuki Katayama, mentioned they can manage large Yen fluctuations. Officials are looking at actions to handle exchange-rate volatility, and the Bank of Japan may raise rates if economic forecasts hold true.

Australian Dollar Outlook

The Australian Dollar could strengthen as the Reserve Bank of Australia shows less confidence in current policies. Australia’s inflation rose to 3.8% in October 2025, above the 2-3% target. This might lead to a rate hike by February 2026. The Bank of Japan (BoJ) aims for price stability, targeting around 2% inflation. Since 2013, it has implemented very loose monetary policies to boost the economy, including negative rates and controlling bond yields by 2016. The differing policies between the BoJ and other banks caused the Yen to weaken, but this trend slightly reversed in 2024 when the BoJ changed its approach. Rising global energy prices and higher wages influenced this policy shift.

Tug Of War In AUD/JPY Market

There is a clear battle in the AUD/JPY market, which is hovering around 104.50 after reaching its highest level since mid-2024. Although the Australian dollar has strong support, concerns about Japanese intervention are limiting its rise. This situation sets the stage for potential trading opportunities in the coming weeks. The outlook for a stronger Australian dollar is improving as we head into the new year, making long positions appealing. Recent data showed Australia’s November CPI at 3.9%, indicating that inflation is still a concern. As a result, overnight index swaps suggest an 85% chance of a 25-basis-point rate hike by the Reserve Bank of Australia in February 2026. However, the risk of intervention from Japan is significant. In late 2022, officials spent over ¥9 trillion to support the Yen when it dropped below key levels. Current warnings indicate that officials are becoming less tolerant of Yen weakness again, raising the risk of a sudden drop in AUD/JPY. Given these mixed factors, traders should think about buying volatility. The quiet holiday trading could lead to significant price movements. Implied volatility for one-month AUD/JPY options has risen to 12.5%, up from 10% last month, indicating that the market is anticipating larger moves. A long straddle or strangle could be a smart strategy to benefit from any breakout in either direction as we move into January. For those looking to stay optimistic on the pair, we recommend structuring long exposure with defined risk. Using call options or bull call spreads allows for participation in potential gains leading up to the February RBA meeting, while limiting losses if Japanese officials take action. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now