AUD/JPY Pulls Back but Holds Bullish Structure Above MAs

Key Moments

Risk Sentiment and Geopolitics Weigh on AUD/JPY

AUD/JPY is softer around 113.95 in the early European session on Tuesday, as the Japanese Yen gains ground against the Australian Dollar. The shift comes as investors adopt a more cautious stance ahead of possible US-Iran peace negotiations, lending support to safe-haven currencies such as the Yen.

According to Bloomberg, US Vice President JD Vance is scheduled to travel to Pakistan later on Monday to restart talks, “either Tuesday night or Wednesday morning.” He is expected to be accompanied by Jared Kushner and special envoy Steve Witkoff.

Uncertainty around the outcome of the discussions remains elevated. The report notes that the trajectory of the Iran peace talks became less clear after US President Donald Trump said earlier on Tuesday that he is not likely to extend the two-week ceasefire with Iran, heightening the pressure on negotiators to secure an agreement to end the war.

Market participants are set to keep a close eye on developments in the Middle East and on the progress of US-Iran talks. Any indications that the conflict could drag on are likely to underpin demand for the Japanese Yen and could pose a headwind for further gains in the AUD/JPY cross.

Technical Picture: Uptrend Intact Despite Pullback

From a technical perspective, the daily chart continues to signal a constructive stance for AUD/JPY. The pair remains firmly above both the 20-day Bollinger simple moving average and the 100-day exponential moving average (EMA), reinforcing the presence of a supported uptrend.

The Relative Strength Index (14) stands at 67.56, hovering just below overbought territory, which points to robust, albeit stretched, bullish momentum. The upper Bollinger band currently defines the immediate ceiling for price action.

On the downside, the first notable support is aligned with the middle Bollinger band around 111.75, where a retreat could attract buyers looking to enter the prevailing uptrend. If selling pressure were to extend further, attention would shift toward a demand area clustered near the 100-day EMA at 108.51 and the lower Bollinger band at 108.41.

On the topside, a decisive move above the upper Bollinger band at 115.10 would signal scope for additional upside. However, the already extended momentum backdrop, as indicated by the elevated RSI reading, suggests that the pace of gains could moderate as price approaches this technical barrier.

Japanese Yen: Key Drivers in Focus

What Influences 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.

Role of the Bank of Japan

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.

Impact of Yield Differentials

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.

Risk Sentiment and the Safe-Haven Bid

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.