The AUD/JPY pair dropped to around 105.65 during early European trading on Monday due to a stronger Japanese Yen. This shift is partly due to possible intervention by Japanese officials to support the Yen against the Australian Dollar. The pair’s first resistance level is at 106.48, while buyers might find support at 105.25. Japanese Finance Minister Satsuki Katayama mentioned that Japan may consider working with the United States on currency intervention to address Yen weakness. Political uncertainty in Japan, including the possibility of a snap election, may negatively impact the JPY in the short term. Prime Minister Sanae Takaichi’s intentions to dissolve parliament for fiscal support have added to the apprehension. Despite these uncertainties, the AUD/JPY maintains a positive trend above 101.60. The relative strength index is neutral to bullish at 59.89, indicating ongoing upward momentum. Charts show less volatility and suggest a potential breakout, with the upper Bollinger Band resistance at 106.48. A close above this resistance may lead to further gains, while a drop below the 20-day middle Bollinger band at 105.25 could signal a decline.

Market Standoff

The AUD/JPY pair is currently trading quietly around 105.65, but there is a significant standoff happening. Japanese authorities are warning about potential market intervention, which is limiting upward movement. These warnings intensified after the pair surged to 106.90 last week, making traders cautious about aggressive buying. However, on a technical level, the uptrend remains strong as long as we stay above the 105.25 area, which is acting as a support level. Buyers have stepped in each time the pair dipped toward this threshold in recent days, showing that many believe in the pair’s strength and view dips as buying opportunities. The political situation in Japan adds another layer of uncertainty that may help the Australian dollar against the yen. Prime Minister Takaichi is expected to call a snap election on Friday, January 23rd, creating uncertainty that typically weakens a currency. This potential political instability is a key reason the yen hasn’t gained more strength, despite the warnings of intervention.

Impact On Derivative Traders

From the Australian perspective, recent data is supporting the Aussie. Last week’s quarterly CPI report for Q4 2025 was slightly above expectations at 3.2%, lowering the likelihood of an imminent rate cut from the Reserve Bank of Australia. This contrasts with the Bank of Japan, which is still dealing with its historically loose monetary policy from 2024. For derivative traders, the current situation of low price action and growing tension is intriguing. The tight consolidation has pushed one-month implied volatility to a six-month low of 9.5%, making options relatively inexpensive. This presents an opportunity to set up trades, like long straddles, that could benefit from significant price swings in either direction after the election or any actual intervention. It’s essential to also remain aware of the larger context, as global risks are increasing with renewed trade tensions between the US and the EU. As seen during previous periods of stress in 2025, any major flight to safety in global markets would likely favor the yen as a safe-haven asset. A sudden geopolitical event could easily disrupt the current technical patterns and drive this pair sharply lower. Create your live VT Markets account and start trading now.

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