AUD/JPY rose for a second session and traded near 110.10 during Asian hours on Wednesday. The Australian Dollar gained after inflation data came in above forecasts. This lifted expectations of more Reserve Bank of Australia (RBA) rate hikes this year. Australia’s Consumer Price Index rose 3.8% year-on-year in January. This matched the prior reading and beat the 3.7% forecast. CPI rose 0.4% month-on-month, down from 1.0% previously. The RBA’s Trimmed Mean CPI rose 0.3% month-on-month and 3.4% year-on-year.

Rba Governor Bullock Speech Watch

Traders will watch RBA Governor Michele Bullock, who is set to speak at a fireside chat at the Melbourne University Faculty of Economics & Business Foundation Dinner. The event will take place in Melbourne, Australia. The pair also gained as the Japanese Yen weakened. Mainichi Shimbun reported that Prime Minister Sanae Takaichi raised concerns about further rate rises in a meeting last week with Bank of Japan Governor Kazuo Ueda. Ueda said the meeting covered broad economic and financial issues, and that no specific monetary policy requests were made. Takaichi is known for pro-stimulus views, including looser fiscal policy and easier monetary settings. The report added uncertainty about the outlook for Bank of Japan rate hikes, even as markets speculate about further policy normalization later this year. This takes us back to this time last year, in early 2025. At that point, stronger-than-expected Australian inflation was pushing AUD/JPY toward 110.10. Markets expected more RBA rate hikes. At the same time, the Yen was weak, partly due to political pressure to keep stimulus in place. Together, these forces drove a strong uptrend in the pair.

Changed Macro Backdrop

One year later, the macro picture looks very different. Australian inflation has eased. The latest January 2026 data shows annual CPI has fallen to 2.9%, which is back inside the RBA’s target band. As a result, markets are no longer pricing in RBA hikes. Instead, they are leaning toward a possible rate cut later this year. Japan has also changed since the political headlines of early 2025. The Bank of Japan exited negative interest rates late last year. With core inflation still firm at 2.4%, speculation is now about when the next hike will come. This shift has pulled AUD/JPY down, with the pair trading around 98.75 today. In the weeks ahead, this policy gap points to more downside risk in AUD/JPY. Traders may consider put options to benefit from a potential drop, especially if upcoming Australian wage data is weak. Under these conditions, a move toward the 97.00 support level from late 2025 looks possible. Implied volatility in AUD/JPY options shows this added uncertainty. As a result, long-volatility trades like straddles are expensive. A more targeted approach, such as a bear put spread, may be cheaper. This strategy involves buying a put at a higher strike and selling a put at a lower strike, which limits both the upfront cost and the potential profit. Create your live VT Markets account and start trading now.

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