AUD/JPY Extends Pullback as BoJ Hawkishness Lifts Yen

Key Moments

Risk Sentiment and Policy Signals Weigh on AUD/JPY

The AUD/JPY cross is trading lower near 110.35 during the early European session on Monday, reflecting renewed support for the Japanese Yen (JPY) against the Australian Dollar (AUD). The move comes as firmer policy rhetoric reinforces the view that the Bank of Japan (BoJ) may deliver an interest rate increase this year.

According to a Reuters poll, most surveyed economists anticipate that the BoJ will leave interest rates unchanged at its October policy meeting on Friday, then follow with a 25 basis-point hike at the subsequent meeting in December.

“It’s a historical moment for the BOJ, though it faces a more ‌challenging task now that it needs to step not just on the accelerator but the brakes,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. “The BOJ will probably scrutinise upcoming data and market moves in deciding whether to raise rates in December, or hold until January,” Naomi added.

On the Australian side, Reserve Bank of Australia (RBA) Chief Economist Sarah Hunter on Monday indicated that additional rate increases may still be required. She cautioned that inflation remains elevated and that recent external price pressures could become embedded in the Australian economy.

BoJ Outlook: Gradual Normalization Caps Yen Gains

Analysts at Brown Brothers Harriman note that, even with the Yen drawing support recently, the BoJ is still expected to move cautiously on tightening. They point out that “headline and core CPI inflation [are] tracking below its 2026 projection of 2.5%.”

The strategists also emphasize that market pricing is restrained, observing that “the swaps curve price in just 2% odds of a 25bps BoJ rate hike to 1.50% on October 30, and 80% probability of a hike on December 18,” highlighting expectations for a slow, data-sensitive adjustment instead of a rapid shift in stance.

BoJ’s Himino Highlights AI-Linked Inflation Pressures

BoJ’s Himino scores 8.2/10 on FXS Speechtracker, matching the historic average and signaling a consistently firm policy tone. Emphasis on strong AI-related capex and exports, rising medium- and long-term inflation expectations, and underlying inflation nearing the 2% target marks a clear hawkish tilt versus the traditional ultra-accommodative stance.

Warnings that postponing policy changes could heighten upside price risks and damage the economy, alongside still-accommodative financial conditions and low real rates, reinforce expectations of gradual normalization. For the Yen, the speech supports a bias toward future tightening, suggesting downside risks for Dollar/Yen if markets bring forward BoJ repricing on sustained inflation and robust bank lending.

Technical Picture: Bearish Setup Persists Below 100-Day SMA

From a technical standpoint, AUD/JPY maintains a short-term bearish structure on the daily chart, with price action holding beneath the 100-day simple moving average (SMA) and staying below the upper Bollinger band. The pair is attempting to consolidate above the middle Bollinger band, which is acting as nearby support, while the Relative Strength Index (RSI) at 47.01 sits slightly under the neutral 50 threshold, pointing to limited recovery strength rather than a clear bullish reversal.

Key levels currently in focus are summarized below:

On the downside, initial support lies at the Bollinger middle band near 110.15, followed by a softer base at the lower Bollinger band around 109.21. A clear move below this latter zone would open the door toward the October 15 trough at 108.64.

On the upside, first resistance is seen at the upper Bollinger band around 111.10, ahead of the 100-day SMA at 112.05. A further advance would then bring the August 18 peak at 113.61 into view.