The Australian Dollar fell by 0.05% against the Japanese Yen after Bank of Japan Governor Kazuo Ueda suggested that rate hikes might occur if economic conditions allow. The pair is trading around 105.00. The Relative Strength Index (RSI) is at 65.20, indicating a bullish trend. AUD/JPY is just below last year’s peak of 105.22.

Technical Levels and Market Influence

If AUD/JPY rises above 105.22, it could head toward 105.77, with further targets at 109.37. Support levels are found at 105.00, 104.40, and 104.00, with a key zone around 103.00 and the 50-day Simple Moving Average (SMA) at 102.40. The Reserve Bank of Australia’s (RBA) interest rates affect the Australian Dollar’s value. Iron Ore prices also play a significant role due to Australia’s strong export reputation, while the health of the Chinese economy affects trade since China is a major partner. The RBA aims to keep inflation steady, impacting wider economic interest rates. Growth in China boosts Australian resource demand, and changes in Iron Ore prices can elevate or lower the AUD’s worth. A strong Trade Balance indicates high demand for Australian exports, which can boost the currency. Reflecting on late 2025, the Bank of Japan’s more aggressive stance helped keep AUD/JPY close to the 105.00 level. Governor Ueda’s comments created notable resistance at last year’s peak. As of today, January 6, 2026, this trend has intensified, necessitating a cautious approach.

Market Strategies and Volatility Outlook

A key point is Japan’s core Consumer Price Index (CPI), which ended the fourth quarter of 2025 at a high 2.7%, far exceeding the Bank of Japan’s target. The swaps market now sees over a 70% chance of a rate hike by the end of this quarter. This growing expectation strengthens the Yen, making a break above 105.22 less likely soon. On the Australian side, the outlook is not as strong, leading to a policy gap that supports Yen strength. Iron ore prices are stable, around $138 per tonne, but weak Chinese data poses challenges. Notably, China’s official manufacturing Purchasing Managers’ Index (PMI) for December 2025 showed a contraction at 49.8, dampening enthusiasm for the Australian Dollar. In this situation, traders might consider hedging long positions or starting bearish strategies. Buying put options with a strike price below the 104.40 support level from last year’s analysis can be a smart move to prepare for a downturn. This strategy offers downside protection while limiting risk to the premium paid. Implied volatility is rising, indicating market uncertainty about when the Bank of Japan will act next. Similar trends occurred in March 2024 when the bank ended its negative interest rate policy, causing sudden Yen moves. Therefore, a strategy like a long straddle could be useful to profit from significant price changes in either direction, but it requires a substantial breakout to succeed. Create your live VT Markets account and start trading now.

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