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The AUD/JPY pair climbs towards 106.00, hitting levels not seen since July 2024 due to yen weakness.
Geopolitical Tensions and Economic Factors
China’s export restrictions on dual-use goods, like rare earth elements, have raised supply-chain risks for Japanese manufacturers, further weakening the JPY. Additionally, news about a possible snap election in Japan has contributed to the Yen’s decline, boosting AUD/JPY’s upward movement. The Australian Dollar benefits from the RBA’s likely interest rate hikes, which drive the AUD/JPY pair’s positive trend. However, ongoing global tensions could increase the JPY’s appeal as a safe-haven currency, potentially limiting AUD/JPY’s gains. The RBA affects the Australian Dollar by adjusting interest rates and other monetary policies, which helps maintain economic stability and can influence currency strength. Economic data and central bank actions, such as quantitative easing or tightening, also impact how strong the Australian Dollar is. The AUD/JPY cross has been climbing since our analysis from last year and is currently trading around 108.50. The main reasons for this strength—a proactive RBA and a cautious Bank of Japan—have played out as we predicted, reinforcing the current trend.Monetary Policy Impacts
The Reserve Bank of Australia implemented two more rate hikes in late 2025, raising the cash rate to 4.85% to tackle ongoing inflation. Australia’s recent quarterly CPI data for Q4 2025 stood at 3.5%, still above the RBA’s target range. This situation keeps the RBA in a hawkish stance, supporting the Australian Dollar. In Japan, the Bank of Japan ended its negative interest rate policy last year, but its single small increase has lagged behind tighter policies in other countries. Recent core inflation in Japan has dipped below the 2% target, allowing the BoJ to delay further major changes. This ongoing interest rate gap makes the yen an attractive option for carry trades. We think long call options on AUD/JPY are a smart trading strategy to ride this momentum. This approach lets traders benefit from potential gains toward the 110.00 level while clearly defining their maximum risk. Given the continuous geopolitical uncertainty throughout 2025, it’s crucial to manage downside risk. Implied volatility for the pair remains high, reflecting ongoing risks that haven’t completely settled. For those looking to hedge, buying out-of-the-money puts can offer protection against sudden “risk-off” events that might strengthen the yen. This balanced strategy allows participation in the upward trend while being prepared for any reversals. Create your live VT Markets account and start trading now.XAG/USD rises for the second day in early European trading, nearing $84.30 per troy ounce.
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