AUD/JPY Price Forecast: Retains positive bias above 98.50 amid fiscal expansion bets

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The AUD/JPY cross extends its upside to around 98.80 during the early European session on Wednesday.

AUD/JPY gathers strength to near 98.80 in Wednesday’s early European session.
The cross keeps the bullish view in the longer term, further upside looks favorable with bullish RSI indicator.
The immediate resistance level is seen at 99.50; the first downside target is located at 97.25.

The AUD/JPY cross extends its upside to around 98.80 during the early European session on Wednesday. The Japanese Yen (JPY) softens against the Australian Dollar (AUD) as conservative Sanae Takaichi was elected as Japan's Prime Minister, with traders betting her government could muddy the interest rate outlook and bring about a greater fiscal largesse.

Technically, the constructive view of AUD/JPY remains in place 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 55.0. This suggests bullish momentum in the near term.

On the bright side, the first upside barrier for the cross emerges at 99.50, the high of October 14. Sustained trading above the mentioned level could pave the way to the 100.00 psychological level. A decisive break above this level could see a rally to the upper boundary of the Bollinger Band of 100.40.

On the downside, the initial support level for AUD/JPY is located at 97.25, the low of October 16. Any follow-through selling below this level could see a drop to 96.86, the low of October 2. The crucial contention level to watch is in the 96.50-96.45 zone, representing the 100-day EMA and the lower limit of the Bollinger Band.

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.