AUD/JPY Price Forecast: Softens to near 104.00 as overbought RSI caps upside potential

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AUD/JPY attracts some sellers to near 104.00 in Wednesday’s early European session.
The cross keeps the bullish vibe above the key EMAs, but further upside might be limited amid an overbought RSI.
The first support level emerges at 102.02.

The AUD/JPY cross loses traction to around 104.00, snapping the six-day winning streak during the early European session on Wednesday. Deeper-than-expected producer deflation data from China undermines the China-proxy Australian Dollar (AUD) against the Japanese Yen (JPY). Nonetheless, concerns about expansionary fiscal measures in Japan and growth worries might cap the downside for the cross.

Data released by the National Bureau of Statistics of China on Wednesday showed that China’s Producer Price Index (PPI) fell by 2.2% YoY in November, following a 2.1% fall in October. The data came in deeper than the market expectation of -2.0%. This data underscored the challenge policymakers face in reviving domestic demand amid persistent trade tensions.

Meanwhile, China’s consumer inflation climbed in November to hit its highest level in nearly two years, with the Consumer Price Index (CPI) rising 0.7% YoY in November, versus an increase of 0.2% prior. The market consensus was for 0.7% in the reported period. On a monthly basis, Chinese CPI inflation arrived at -0.1% MoM in November, compared to a rise of 0.2% in October.

Technical Analysis:

In the daily chart, AUD/JPY trades at 104.00. The 20-day SMA within the Bollinger set slopes higher beneath price, while the 100-day EMA at 98.91 rises, reinforcing a constructive uptrend. Staying above these averages keeps the bias bullish, and a dip toward the EMA would test broader trend support.

Bollinger Bands widen as price hovers at the upper band, signaling strong upside momentum and a stretched advance. RSI at 70.60 is overbought and could cap near-term gains. Initial support sits at the middle band near 102.02, with the lower band at 100.03 as the next cushion. A daily close above the band top would extend the climb, whereas failure to hold the mid-band could usher a deeper retracement.

(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.