AUD/JPY dropped more than 1% on Wednesday as demand for the Japanese yen jumped after Prime Minister Sanae Takaichi won a landslide election. At the time of writing, the pair was trading at 109.23. The yen is also gaining support from expectations that the Bank of Japan may move toward policy normalisation, as well as the possibility that Japanese authorities could step in to support the currency in FX markets. The Nikkei Index has also climbed on speculation about more economic stimulus.

Technical Levels And Trend

Even with the decline, the broader trend is still up. Price is moving toward support near 107.99, where an uptrend line meets the 20-day SMA. A break below 108.00 could extend the pullback, with the 50-day SMA at 105.75 as the next key level. If selling pressure continues, the focus shifts to the 100-day SMA at 102.74 and the 200-day SMA at 99.08. If the pair pushes back above 110.00, it could retest the yearly high at 110.79. In 2025, Takaichi’s win triggered a sharp yen rally that sent AUD/JPY lower. The pair soon broke below 108.00 and later found support near the 50-day moving average, as expected. That move became a useful guide to how markets respond when investors price in stronger odds of Japanese policy normalisation. Today looks similar. The main driver is still the possibility of a Bank of Japan shift. Japan’s national core inflation is running at 2.5% year-over-year in the latest data, increasing pressure on the central bank to finally move away from negative interest rates. This backdrop makes it harder for the yen to weaken meaningfully.

Options Strategy And Market Pricing

On the other side, the Reserve Bank of Australia faces a different environment. Australia’s quarterly inflation has eased to 3.8%, well below its peak, which reduces the need for further rate hikes. This split—potentially more hawkish BoJ expectations versus a more neutral RBA—creates a bearish fundamental setup for AUD/JPY. For derivatives traders, that may support positioning for further downside in the coming weeks. The current setup resembles 2025, when political developments pointed to policy change and ultimately helped strengthen the yen. Buying AUD/JPY put options is one way to target a decline while keeping risk defined. Current options pricing also looks supportive for this approach. Implied volatility in AUD/JPY is near a six-month low at 9.8%, which makes puts relatively cheap. This may offer an opportunity to position for a possible unwind of the carry trade if the Bank of Japan signals policy change at upcoming meetings. A break below the recent support at 107.50 could be the trigger for a move back toward 105.00. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now