The AUD/JPY has fallen over 1% from its six-month peak of 97.43. This drop is happening as the Japanese Yen gains strength, with the 10-year JGB yield reaching 1.6%, the highest since 2008. On Thursday, Australia will release its June employment report, which is expected to show a 20,000 job increase and maintain an unemployment rate of 4.1%. The Australian Dollar is retreating against the Yen due to profit-taking and a drop in momentum. Technical indicators suggest the rally is slowing down, with the Relative Strength Index falling from overbought territory. This indicates that the currency pair is undergoing a short-term correction.

Impact of Australia’s Employment Report on RBA Policy

The upcoming employment report will influence expectations for the Reserve Bank of Australia’s monetary policy. If job gains are strong, it could support current cash rates. On the other hand, weak job growth might lead to predictions of rate cuts. The market sees an 80% chance of a rate cut in August, especially with the upcoming Consumer Price Index report. In Japan, important economic updates this week include the trade balance and Consumer Price Index reports. These will shed light on Japan’s economic situation and affect the Bank of Japan’s policy outlook. Strong CPI numbers could push Japanese yields up, bolstering the Yen and putting more pressure on the AUD/JPY. We believe derivative traders face a crucial point in the AUD/JPY, fueled by differing views from central banks. The recent rise in Japanese government bond yields above 1.0%—a level not seen since 2012—signals a major shift. This scenario suggests that holding long positions has become much riskier. Australia’s latest monthly CPI was unexpectedly high at 4.0%, making the upcoming employment figures even more important. We recommend using options, like buying put options, to protect against a worse-than-expected jobs report that might back the Reserve Bank’s rate cut. This strategy limits risk while providing some downside protection.

Influence of Japan’s Inflation on Yen Strength

Meanwhile, Japan’s core inflation remains above the central bank’s 2% target, recently recorded at 2.5%. A strong CPI reading could spark speculation that the Bank will continue to normalize policy, following its first rate hike in 17 years last March. This possibility of a stronger Yen makes short-term bearish strategies on the pair appealing. The pair’s slip from overbought levels on the Relative Strength Index supports the idea of a continuing technical correction. We see an opportunity for a bear put spread, where traders buy a higher-strike put and sell a lower-strike one. This tactic allows profit from a moderate decline while limiting both potential gains and risks. With significant data coming from both nations, we expect increased volatility. Historically, the pair’s implied volatility jumps around key central bank announcements. Traders unsure of the market direction might consider a long straddle by buying both a call and a put option at the same strike price to benefit from a substantial move in either direction. Create your live VT Markets account and start trading now.

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