AUD/JPY Edges Higher as Risk Mood Improves, Trend Holds

Key Moments

Risk Sentiment Lifts AUD Against JPY

The AUD/JPY cross is trading higher in early European dealings on Friday, with the pair quoted around 112.80 and maintaining positive territory above 112.50. The Australian Dollar (AUD) is outperforming the Japanese Yen (JPY) as investors respond to rising optimism that a peace agreement in the Middle East might finally be reached.

US President Donald Trump said on Thursday that a peace deal could be signed as soon as this weekend, just hours after threatening more strikes on Iran. Trump added that negotiations with Iran had advanced to the highest levels of Iran’s leadership and had been approved by a broad coalition of regional powers. The positive developments surrounding the US-Iran peace deal boost a riskier currency, such as the Aussie against the JPY.

RBA Expectations Support the Aussie

A Reuters survey released on Friday indicated that most economists anticipate the Reserve Bank of Australia (RBA) will keep its Official Cash Rate (OCR) unchanged at 4.35% on June 16, following three consecutive increases. The poll showed that 26 of 44 economists expect the cash rate to remain at 4.35% by the end of September, while 18 foresee it rising to 4.60% or higher.

This policy outlook helps underpin the AUD, as market participants weigh the likelihood of further tightening against a pause in the current cycle.

JPY Supported by Intervention Concerns

On the Japanese side, the possibility of official intervention is providing some support to the Yen and limiting upside in the AUD/JPY cross. Finance Minister Satsuki Katayama said on Tuesday that authorities are watching speculative moves in the currency closely and remain ready to act decisively to curb domestic currency weakness.

These comments keep traders alert to the risk of direct action in foreign exchange markets, which could temper aggressive selling of the Yen.

Technical Outlook: Bullish Bias, Softer Momentum

From a technical perspective, AUD/JPY continues to trade above the 100-day simple moving average (SMA) and the lower Bollinger Band on the daily chart, preserving the broader uptrend despite a recent retreat from prior highs. This positioning suggests that the overarching bullish structure is still in place.

However, the Relative Strength Index (RSI) hovering near 44 signals waning upside momentum, implying that further gains could unfold more gradually in the near term.

On the upside, the initial barrier is located at the June 9 peak of 133.18. Above that, the Bollinger middle band near 113.60 is the next area to monitor, and a decisive break there would expose the upper band close to 114.95.

On the downside, initial support is aligned with the lower Bollinger Band around 112.25, followed by the 100-day SMA at 111.82. These zones are expected to attract buyers aiming to preserve the broader bullish trend.

Japanese Yen: Key Drivers in Focus

The Japanese Yen (JPY) is described as one of the most actively traded currencies globally. Its valuation is influenced by the overall performance of Japan’s economy, with particular emphasis on the Bank of Japan’s (BoJ) policy stance, yield differentials between Japanese and US government bonds, and overall risk sentiment in financial markets, among other factors.

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.

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.

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.