AUD/JPY Price Forecast: Softens below 112.50, bearish tone prevails

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The AUD/JPY cross trades in negative territory around 112.25 during the early European trading hours on Monday.

AUD/JPY softens to near 112.25 in Monday’s early European session.
Reports that Japan plans to encourage pension funds to increase their holdings of domestic financial assets support the Japanese Yen.
The bearish tone for the cross remains intact below the 100-day SMA.
The immediate resistance level emerges at 112.35; the initial support level to watch is 111.15.

The AUD/JPY cross trades in negative territory around 112.25 during the early European trading hours on Monday. The Japanese Yen (JPY) strengthens against the Australian Dollar (AUD) amid a renewed push by Japanese authorities for the nation’s massive public pension funds to increase allocations to domestic assets.

"The pension funds are pretty large in size (and) currently, 50 per cent is allocated to foreign investments in their strategic allocation, (so) a shift in that would definitely create a lot more inflows for domestic assets," said Fabien Yip, a market analyst at IG. "That's supportive of the currency and at the same time, also supportive of equities and bonds,” Yip added.

Technical Analysis:

In the daily chart, AUD/JPY holds a mildly bearish bias as it slips under the Bollinger middle band and consolidates just above the lower half of the recent range. The 20-day Bollinger envelope now caps price action, while the 100-day simple moving average (SMA) around 112.59 remains an underlying trend reference, suggesting that recent weakness is still occurring within a broader uptrend. The Relative Strength Index (14) has eased to about 47, hinting at fading upside momentum without yet indicating oversold conditions.

On the topside, immediate resistance emerges at the Bollinger middle band near 112.35, with further upside barriers seen at the upper Bollinger band around 113.52. On the downside, a move below the recent band floor near 111.15 would expose deeper corrective risk, with the broader trend still anchored by the longer-term 100-day SMA acting as an important demand area on pullbacks.

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

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.