AUD/JPY Price Forecast: Keep bullish vibe above 109.00, Japan CPI inflation falls below BoJ’s target

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The AUD/JPY cross loses ground to around 109.15 during the early European session on Friday. A shift toward risk-off sentiment and the downbeat Australian January employment data drag the Aussie lower against the Japanese Yen (JPY).

AUD/JPY softens to near 109.15 in Friday’s early European session.
Japan CPI inflation fell below the BOJ’s 2% target for the first time since March 2022.
The cross maintains the constructive outlook in the medium term above the key 100-day EMA.
The immediate resistance level is seen at 110.68; the first downside target to watch is 108.65.

On the other hand, soft Japanese Consumer Price Index (CPI) inflation data could weigh on expectations of interest rate hikes by the Bank of Japan (BoJ) in the near term. This, in turn, might undermine the JPY and create a tailwind for the cross.

Data released by the Japan Statistics Bureau on Friday revealed that the National CPI rose by 1.5% YoY in January, compared to 2.1% in December. This figure registered its lowest level since March 2022. Meanwhile, the core inflation rate, which excludes fresh food, eased to 2.0% YoY in January from 2.4% in December. The figure came in line with the market consensus. The so-called “core-core” inflation, excluding fresh food and energy, declined to 2.6% YoY in January, down from the previous reading of 2.9%.

Technical Analysis:

In the daily chart, AUD/JPY holds above the 100-day EMA, reinforcing a medium-term uptrend and keeping dip-buying bias intact. RSI at 57.79 stays above the 50 line as momentum cools from earlier peaks but remains supportive. Price sits above the 20-day middle Bollinger Band and leans toward the upper band at 110.68. The bands are gradually widening, signaling firm bullish pressure; a close above the upper band could extend the advance.

Bollinger structure remains favorable as price tracks the upper half of the envelope, though proximity to the top band would cap immediate upside if momentum fades. Initial support stands at 108.65 (middle band), while a deeper pullback could test 106.65 (lower band) before 104.25 (100-day EMA). Holding above these layers would keep the broader uptrend intact and maintain a topside bias in coming sessions.

(The technical analysis of this story was written with the help of an AI tool.)

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.