AUD/JPY Price Forecast: Constructive outlook remains intact near 110.00

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AUD/JPY strengthens to near 100.90 in Wednesday’s early European session.
A constructive outlook prevails above the 100-day EMA, with the bullish RSI indicator.
The immediate resistance level is seen at 101.03; the initial downside target is located at 100.00.

The AUD/JPY cross gains ground to around 100.90 during the early European session on Wednesday. The Bank of Japan (BoJ) has been reluctant to commit to further interest rate hikes on the back of Japan's Prime Minister Sanae Takaichi's pro-stimulus stance. This, in turn, could undermine the Japanese Yen (JPY) against the Australian Dollar (AUD). However, verbal intervention from Japanese authorities might cap the downside for the JPY in the near term.

Technically, AUD/JPY keeps the bullish vibe in the longer term as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 59.95. This suggests the path of least resistance is to the upside.

On the bright side, the first upside barrier for the cross emerges at 101.03, the high of October 31. Sustained trading above the mentioned level could see a rally to the upper boundary of the Bollinger Band of 101.80. The next hurdle to watch is 102.30, the high of November 8, 2024.

On the downside, the initial support level for AUD/JPY is located at the 100.00 psychological level. More bearish candlesticks below the mentioned level could pull the cross back toward 98.97, the low of November 7. Further south, the crucial contention level to spot is in the 97.65-97.60 zone, representing the lower limit of the Bollinger Band and the 100-day EMA.

AUD/JPY Daily Chart

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.