AUD/JPY Dips Below 113 as Yen Rises on Risk Aversion

Key Moments

Market Overview

AUD/JPY weakens to around 112.95 in early European trading on Monday, as the pair retreats from recent highs but continues to trade within a broader ascending trend. Despite the latest decline, the cross remains above the 100-day Exponential Moving Average (EMA), suggesting that the overarching bullish structure is still in place, even if a period of consolidation is likely in the near term.

Immediate resistance for the cross is identified at 113.40, while initial downside support is seen at 112.00.

Safe-Haven Bid Boosts Yen

The Australian Dollar (AUD) loses ground against the Japanese Yen (JPY) as geopolitical risks support demand for traditional safe-haven assets. Heightened uncertainty surrounding tensions in the Middle East and the closure of the Strait of Hormuz are driving investors toward the Yen.

According to CNN, US President Donald Trump stated that the United States will start escorting ships through the Strait of Hormuz on Monday. In response, Iranian official Ebrahim Azizi cautioned that this initiative represents a breach of the ceasefire.

RBA Expectations Support AUD

Counterbalancing some of the risk-off pressure, market participants anticipate that the Reserve Bank of Australia (RBA) will deliver a third consecutive interest rate increase on Tuesday. This expectation is tied to a sharp rise in headline inflation in March, which has been driven by global energy shocks and ongoing Middle East tensions.

Technical Picture: Uptrend Holds Despite Pullback

On the daily chart, AUD/JPY maintains a constructive bullish tone, with the spot rate holding comfortably above the 100-day EMA. This configuration keeps the broader uptrend intact despite the latest retracement. Price action also remains above the lower Bollinger Band, while the Relative Strength Index (RSI) has eased back to 50.8, signaling a move into neutral territory that aligns more with consolidation than with a full trend reversal.

On the topside, the first technical barrier aligns with the 20-day Bollinger middle band at 113.40. A decisive move above this level would open the path toward the April 28 peak at 114.72, with the upper Bollinger Band near 115.18 acting as the next upside objective.

On the downside, the 112.00 psychological handle is the initial area of support, followed by the lower Bollinger Band at 111.65. A more pronounced decline toward the 100-day EMA at 109.37 would still be compatible with the prevailing bullish framework and could present a stronger demand zone.

(The technical analysis of this story was written with the help of an AI tool.)

Japanese Yen: Key Drivers

The Japanese Yen (JPY) ranks among the most heavily traded currencies globally. Its valuation is largely influenced by the performance of the Japanese economy and, more specifically, by the policy stance of the Bank of Japan (BoJ), interest rate differentials – particularly between Japanese and US government bonds – and overall risk sentiment in financial markets.

BoJ Policy and Yield Differentials

One of the Bank of Japan’s mandates is currency control, making its decisions highly significant for the Yen. The BoJ has, at times, intervened directly in foreign exchange markets, typically with the goal of pushing the Yen lower, although it tends to avoid frequent intervention due to political sensitivities with major trading partners.

The BoJ’s ultra-loose monetary policy during the period between 2013 and 2024 contributed to Yen weakness against major counterparts, as policy divergence with other central banks widened. More recently, the gradual unwinding of this ultra-loose stance has provided some support to the currency.

For much of the last decade, the BoJ’s commitment to very accommodative policy has led to a broadening gap between Japanese yields and those of other economies, especially the United States. The resulting increase in the spread between 10-year US and Japanese government bond yields has tended to benefit the US Dollar over the Yen. The BoJ’s decision in 2024 to begin phasing out its ultra-loose policy, combined with interest rate cuts by other major central banks, is helping narrow this differential.

Risk Sentiment and the Yen’s Safe-Haven Role

The Japanese Yen is widely regarded as a safe-haven asset. During periods of market turbulence or elevated uncertainty, investors often shift capital into the Yen due to its perceived stability and reliability. As a result, episodes of financial stress or geopolitical tension are typically associated with Yen strength against currencies that are viewed as riskier.