AUD/JPY Price Forecast: Positive view remains in place, overbought RSI warrants caution for bulls

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AUD/JPY strengthens to around 98.20 in Monday’s early European session.
The cross keeps the bullish view, but the overbought RSI condition might cap its upside.
The immediate resistance level is seen at 98.50; the initial support level is located at 97.01.

The AUD/JPY cross edges higher to near 98.20 during the early European session on Monday. The Japanese Yen (JPY) softens against the Australian Dollar (AUD) after Japan’s Prime Minister Shigeru Ishiba announced his resignation. The latest political developments in Japan fueled uncertainty over the likely timing and the pace of interest rate hikes by the Bank of Japan (BoJ).

About the economic docket, the National Bureau of Statistics (NBS) showed Monday that China’s Retail Sales rose 3.4% year-over-year (YoY) in August versus 3.7% prior. This figure came in worse than the expectation of 3.8%. Meanwhile, Industrial Production increased 5.2% YoY in the same period, compared to 5.7% in July, below the market consensus of 5.8%. However, the downbeat Chinese economic data fail to boost the China-proxy Aussie.

Technically, the positive view of AUD/JPY remains in play as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. However, the 14-day Relative Strength Index (RSI) stands above the midline near 71.00, indicating the overbought RSI condition. This suggests that further consolidation or a temporary sell-off cannot be ruled out before positioning for any near-term AUD/JPY appreciation.

On the bright side, the key upside barrier for the cross emerges at 98.50, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 99.17, the high of January 7. A decisive break above this level could pick up more momentum and aim for the 100.00 psychological level.

On the other hand, the initial support level for AUD/JPY is located at 97.01, the low of September 10. Any follow-through selling below this level could expose 96.31, the low of September 5. The additional downside filter to watch is 95.57, 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.