Key Moments
- AUD/JPY trades around 104.05 in early European deals as selling pressure builds.
- Market focus shifts to Tuesday’s RBA decision. A 25 bps hike to 3.85% is expected after December CPI rose to 3.8%.
- Technicals show price below the lower Bollinger Band and RSI at 41.21. Key levels: 106.48 on the upside, 102.95 on the downside.
Cross Under Pressure Ahead of RBA Decision
AUD/JPY weakened near 104.05 in early European hours on Monday. Selling pressure increased after the Bank of Japan’s (BoJ) Summary of Opinions from January 22-23 signaled a more hawkish stance.
BoJ board members voiced concern about falling “behind the curve” on inflation. They argued for timely rate hikes. Consequently, the Yen gained strength, weighing on the AUD/JPY cross.
RBA Policy Outcome in Focus
All eyes are on the Reserve Bank of Australia (RBA), which meets on Tuesday. The RBA is expected to raise the Official Cash Rate (OCR) by 25 basis points to 3.85%.
This follows a rise in inflation, with the Consumer Price Index (CPI) hitting 3.8% in December. Traders are not only watching the rate decision but also the central bank’s guidance. A hawkish tone or hints of further hikes could support the Australian Dollar against the Yen.
Technical Picture: Supportive Trend, Short-Term Weakness
On the daily chart, AUD/JPY stays above its 100-day Exponential Moving Average (EMA), which keeps the medium-term trend constructive. A fall toward this EMA would mark a key area of support.
Currently, the spot trades below the lower Bollinger Band at 104.37. The widening bands highlight increased volatility and an extended downside move. The Relative Strength Index (RSI) is 41.21, below neutral 50, signaling waning bullish momentum.
If the pair rebounds, it could target the middle Bollinger Band at 106.48 as initial resistance. On the downside, continued selling could push the pair back toward the 100-day EMA at 102.95.
| Indicator / Level | Reading / Value |
|---|---|
| Current price area | 104.05 |
| Lower Bollinger Band | 104.37 |
| Middle Bollinger Band / First resistance | 106.48 |
| 100-day EMA / Initial support | 102.95 |
| RSI (daily) | 41.21 |
Although the 100-day EMA underpins the broader trend, short-term momentum turned negative after breaking below the lower Bollinger Band. A sustained base above the EMA would stabilize sentiment. The wider Bollinger Bands suggest rising volatility, which may precede a decisive move. With RSI under 50, rebounds may struggle until momentum improves.
Japanese Yen: Background and Market Drivers
What Drives the Japanese Yen?
The Japanese Yen (JPY) is among the world’s most traded currencies. Its value is affected by Japan’s economic performance, the Bank of Japan’s policy, US-Japan bond yield differentials, and overall risk sentiment.
Role of the Bank of Japan
The BoJ plays a key role in the Yen’s value. Occasionally, it intervenes to reduce the Yen’s value, but political considerations usually prevent frequent action. Between 2013 and 2024, ultra-loose policy caused the Yen to weaken versus major currencies. Recently, gradual policy normalization has provided some support.
Impact of Yield Differentials
Ultra-loose BoJ policy widened the gap between Japanese and US yields. This favored the US Dollar against the Yen. The 2024 move to unwind loose policy, combined with rate cuts elsewhere, has started to narrow this differential.
Safe-Haven Characteristics
The Yen is seen as a safe-haven currency. In times of market stress, investors often shift into Yen for reliability and stability. Turbulent periods tend to strengthen the Yen against riskier currencies.
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