AUD/JPY Bounces Above 110, But Technicals Favor Downside

Key Moments

Fundamental Drivers: Softer BoJ Tone Weighs on Yen

AUD/JPY traded higher around 110.30 in early European hours on Friday, reversing a two-session losing streak. The move reflected renewed pressure on the Japanese Yen (JPY) against the Australian Dollar (AUD), as investors reacted to cautious messaging from Bank of Japan (BoJ) officials.

Earlier in the week, BoJ Governor Kazuo Ueda surprised markets with comments that were perceived as less hawkish than anticipated. He said the central bank would “assess the likelihood and risks of the baseline economic and price outlook being realized” when considering the pace and timing of future rate increases.

In addition, BoJ board member Ayano Sato remarked on Wednesday that she favored a gradual process of lifting interest rates in several stages, reinforcing the perception that policymakers are in no rush to tighten aggressively.

As a result, traders adjusted expectations for near-term policy moves. According to Bloomberg, the implied probability of a rate increase at this month’s BoJ meeting fell to nearly 12%, after having been as high as 40% early last week. When the December meeting is included, the implied probability rises to around 90%.

Gradual Tightening and the Yen’s Carry Trade Role

Rabobank FX strategists observed that, “despite announcing an as expected rate hike at its September policy meeting, the BoJ’s guidance was not as hawkish as the market had hoped for.” At the same time, they emphasized that “the BoJ’s policy of gradually raising interest rates is still eroding the JPY’s funding currency appeal,” arguing that the ongoing but measured tightening phase is reducing the Yen’s attractiveness in carry trades.

Sato’s Comments and Implications for Yen Outlook

BoJ’s Sato speech scores 6.4 on FXS Speechtracker, exactly in line with the speaker’s historic average, signaling a stable but mildly hawkish stance. Agreement on gradual interest rate adjustment and rejection of a preset hiking path point to a cautious normalization bias that can lend modest support to the Yen.

The emphasis on policy independence alongside the administration’s proactive fiscal stance suggests scope for further rate moves if inflation risks materialize. With price risks seen tilting slightly higher on rising oil costs linked to Middle East tensions, the speech reinforces a hawkish tilt at the margin, keeping upside risks for the Yen intact while avoiding an aggressive tightening signal.

Technical Picture: Recovery Faces Key Resistance Levels

On the daily chart, AUD/JPY continued to display a bearish short-term structure, as spot remained below the 100-day simple moving average (SMA) and under the 20-day middle band of the Bollinger Bands. Price also stayed beneath the upper Bollinger band, while the 14-period Relative Strength Index (RSI) hovered around 43, indicating weakening bullish momentum and a bias toward downside risk rather than a durable uptrend.

On the upside, initial resistance appeared at the Bollinger middle band near 110.55. A move through that area would expose the upper Bollinger boundary at 112.10, followed by the 100-day SMA at 112.45. A clear break beyond 112.45 could open the way toward the July 27 peak at 114.67.

On the downside, the first key support remained the 110.00 psychological level. Sustained selling below 110.00 could bring the lower Bollinger band at 109.00 into focus, with further weakness potentially targeting the October 1 low at 108.71.