AUD/JPY Holds Near 110.70 Amid BoJ Hike & Bearish Setup

Key Moments

Fundamental Drivers: Energy Costs and BoJ Expectations

AUD/JPY is trading in positive territory near 110.70 during Wednesday’s early European session. The cross is benefiting from weakness in the Japanese Yen, as rising energy prices linked to the ongoing conflict in the Middle East increase import costs for Japan’s oil-dependent economy and weigh on the currency.

Analysts anticipate that the Bank of Japan will opt for a 25-basis-point rate increase at its policy meeting on Friday, which would lift Japan’s benchmark borrowing costs to their highest level since April 1995.

“We expect the BoJ to hike 25 bps at the upcoming meeting on 16-17 September,” said OCBC Group Research analysts. “We have pencilled in 2 additional hikes of 25bps in 2027, and we expect these hikes to be front loaded should the BoJ continue its hawkish rhetoric after the September hike is delivered,” they added.

Market participants are set to scrutinize remarks from BoJ Governor Kazuo Ueda regarding the potential trajectory and ultimate destination of interest rates in the current tightening phase. Any signal that the central bank may lean more hawkish could lend support to the JPY and potentially cap gains in AUD/JPY in the near term.

Standard Chartered: Case for a Pre-emptive BoJ Hike

Analysts at Standard Chartered see scope for a further step in policy normalization, expecting the BoJ to raise the policy rate by “25bps to 1.25% at its 17-18 September meeting,” while emphasizing that the central bank is likely to “avoid an overly hawkish message.”

They judge that the economy can withstand another modest rate increase, pointing out that “Q2 GDP growth was revised up, exports remain robust, investment indicators are resilient, and real wages are rising.” At the same time, they note that “inflation risks are also increasing as higher energy prices and earlier JPY weakness pass through the supply chain,” which supports the rationale for a pre-emptive move even as policymakers proceed cautiously with the broader normalization process.

Technical Outlook: Bearish Bias Persists Below 100-day SMA

From a technical standpoint, AUD/JPY maintains a negative short-term tone on the daily chart, as the cross continues to trade under the 100-day Simple Moving Average and the middle line of the Bollinger Bands. Price action is confined to the lower half of the Bollinger envelope, while the Relative Strength Index stands at 36.04, hovering close to oversold territory. This configuration suggests that downside pressure remains in place, even if a temporary corrective bounce cannot be excluded.

Key Levels to Watch

On the topside, the first resistance is identified at the August 10 low of 112.45, ahead of the Bollinger middle band near 112.60. A sustained move through this zone could open the door toward the 100-day SMA at 112.95, while the upper Bollinger band around 115.90 represents a more distant ceiling should a more pronounced rebound materialize.

On the downside, initial significant support is located at the 100.00 psychological handle. Below this, the lower Bollinger band around 109.25 is the next level of interest, followed by the March 31 trough at 108.79 and the February 16 low at 107.73.