AUD/JPY gave up earlier gains and traded near 112.50 in Asian hours on Tuesday. The pair weakened after the Reserve Bank of Australia (RBA) policy decision. The RBA raised the Official Cash Rate to 4.10% in March from 3.85%. Markets are focused on Governor Michele Bullock’s press conference for guidance on the next steps.

RBA Inflation Pressure And Rate Outlook

The Middle East conflict has pushed energy prices higher and added to inflation pressure in Australia. Australia’s resilient economy leaves room for the RBA to lift rates to manage inflation while limiting damage to growth. AUD/JPY gains may be capped if the Japanese Yen finds support from possible action by Japanese authorities. Finance Minister Satsuki Katayama said markets are seeing increased volatility and that officials are ready to act, including in the foreign exchange market. Bank of Japan Governor Kazuo Ueda said underlying inflation is moving towards the 2% target and that policy will be set to achieve stable inflation. The BoJ is widely expected to keep rates unchanged at 0.75% on Thursday, while keeping the option of further tightening. We are seeing a clear tug-of-war in the AUD/JPY, which is creating opportunities around the current 112.50 level. The Reserve Bank of Australia is staying firm, holding its cash rate at 4.35% in its last meeting, prompted by stubbornly high inflation which we saw clock in at 3.5% for the final quarter of 2025. This hawkish stance makes holding the Australian dollar attractive.

Options Positioning And Intervention Risk

This policy difference, with the Bank of Japan’s rate at just 0.25%, is the main driver behind the pair’s strength. Derivative traders should consider buying AUD/JPY call options to profit from further upside, as the significant yield differential will likely continue to attract carry traders. This strategy allows for participation in gains while defining the maximum risk. However, we must be cautious as the pair is trading in a zone that invites official attention from Japan. Looking back to the interventions we saw throughout 2024 and 2025, Japanese authorities have a low tolerance for rapid Yen weakness, and verbal warnings are getting stronger. This creates a ceiling for the pair and suggests that buying put options as a hedge against a sudden reversal is a prudent move. The risk of intervention means volatility is expected to increase in the coming weeks. Traders could use straddle or strangle options strategies, which profit from a large price move in either direction without betting on the specific outcome. Implied volatility for AUD/JPY one-month options has already ticked up to near 11.5%, reflecting this market uncertainty. Underlying all this is the renewed tension in the Middle East, which has pushed WTI crude oil prices back towards $90 a barrel. As Australia is a major energy exporter, these higher commodity prices support both the national economy and the Australian dollar. This provides a fundamental reason to believe the RBA will not be in a position to cut rates anytime soon. Create your live VT Markets account and start trading now.

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