AUD/JPY Holds Uptrend Despite BoJ Hike, Eyes 113.58 Pivot

Key Moments

Spot Action Around BoJ and RBA Decisions

AUD/JPY was modestly weaker near 113.25 in early European trading on Wednesday, trading in negative territory but still holding within its broader bullish structure. The move came as the Japanese Yen (JPY) firmed against the Australian Dollar (AUD) following a widely anticipated rate hike by the Bank of Japan (BoJ).

The BoJ concluded its two-day policy review on Tuesday by increasing the short-term policy rate by 25 basis points to 1.0% from 0.75%. This adjustment took rates to their highest level in more than thirty years. According to the Monetary Policy Statement, the board member will continue to increase the policy rate in response to developments in economic activity, prices and financial conditions.

In contrast, the Reserve Bank of Australia (RBA) opted to leave its Official Cash Rate unchanged at 4.35% at its June monetary policy meeting on Tuesday. This hold followed three straight 25 basis point increases earlier in the year. Despite the pause, the RBA signaled that additional tightening could still be required to achieve its objectives.

Technical Picture: Constructive Trend, Scope for Consolidation

From a technical standpoint, AUD/JPY maintains a constructive bias on the daily chart as spot prices remain above the 100-day Simple Moving Average (SMA) and trade in the upper half of the Bollinger Bands. The 14-period Relative Strength Index (RSI) is hovering near 48, which indicates a neutral momentum profile and supports the view that the market is in a consolidative phase rather than overbought. This backdrop implies that any corrective moves may be limited while the underlying trend support holds.

On the topside, the first key resistance level appears at the Bollinger middle band near 113.58. A sustained move above this threshold would expose the Bollinger upper band resistance around 114.90. On the downside, initial support is seen at the recent pivot area around 113.23. Below that, the next layers of support are located at the Bollinger lower band near 112.25 and then at the 100-day SMA around 112.00, where buyers would need to emerge to preserve the current upward bias.

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

Context: Japanese Yen Characteristics

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.

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.