AUD/JPY Tops 110, but Charts Point to Downside Risk

Key Moments

Market Overview

AUD/JPY is trading higher around 110.20 in early European hours on Tuesday, although technical indicators continue to point to a negative bias. Market participants are focused on an upcoming speech by Bank of Japan (BoJ) Governor Kazuo Ueda later in the day, looking for fresh guidance on the central bank’s interest rate outlook.

According to three sources cited as being familiar with internal BoJ thinking, the central bank could signal later this month that underlying inflation has moved close to its 2% objective. Such communication would highlight a readiness to resume interest rate increases in the months ahead.

The same sources indicated that, following the rate hike in September, some BoJ policymakers remain wary of implementing another increase this month. These officials are inclined to wait for additional economic data and to gauge how prior rate moves are feeding through to domestic financial conditions before deciding on any further tightening.

Policy Expectations in Japan and Australia

On the Australian side, money market pricing currently indicates that investors expect the Reserve Bank of Australia (RBA) to be inclined toward a rate increase at its November meeting. However, data from LSEG show that the implied probability of such a move has dropped to around 20%.

Inflation Signals in Japan and Korea

Analysts at MUFG/BTMU highlight that recent inflation figures from Korea and Japan continue to keep policymakers focused on underlying price dynamics, even as headline readings diverge.

For Korea, they note that “CPI inflation eased to 2.9%yoy in September, matching consensus and down from 3.1%yoy,” which indicates some cooling but not enough to remove inflation from the policy agenda.

In Japan, the data came in stronger than expected. MUFG/BTMU point out that “headline Tokyo CPI, which serves as a leading proxy for nationwide inflation, accelerated to 2.7%yoy in September, above the 2.5% consensus and 1.9% in August.” They further emphasize that “core Tokyo CPI excluding fresh food and energy rose markedly to 3.0%yoy, above the 2.5% consensus and 2.0%yoy in August, marking its highest reading under the Takaichi administration.” The analysts conclude that these developments “should keep both the BoK and BoJ attentive to inflation and the need for policy tightening,” reinforcing the market’s attention on policy direction and related positioning in regional currencies.

Technical Picture: Bearish Tone Below the 100-Day SMA

On the daily chart, AUD/JPY continues to show a short-term bearish tone, with price action remaining below both the 20-period simple moving average (the middle Bollinger band) and the 100-day moving average. The advance is also constrained by the upper Bollinger band, while the 14-period Relative Strength Index, at about 40.8, sits in a neutral-to-weak range that suggests sellers maintain the upper hand without the pair entering oversold territory.

On the upside, initial resistance is seen near the Bollinger middle band at 110.60. A break above that area would bring the upper Bollinger band around 112.15 into view, followed by the 100-day moving average near 112.55 if buying momentum persists.

On the downside, the first significant floor is the 110.00 psychological handle. Below that, the lower Bollinger band around 109.10 becomes the next important zone. A clear move through this support would expose the October 1 low at 108.71 and could open the way for a more pronounced decline.