AUD/JPY Price Forecast: Bearish outlook remains intact near 96.50

AUD/JPY weakens to around 96.55 in Monday’s early Asian session, down 0.24% on the day.
The cross keeps the negative outlook below the 100-day EMA with a bearish RSI indicator.
The initial support emerges at 94.72; the first upside barrier is located at 98.02.

The AUD/JPY cross attracts some sellers to near 96.55 during the Asian trading hours on Monday. The Japanese Yen (JPY) strengthens as Japan's economy grew faster than expected in the fourth quarter (Q4), triggering the expectation that the Bank of Japan (BoJ) will hike interest rates further.

Japan’s Gross Domestic Product (GDP) expanded by 0.7% QoQ in Q4, compared to the previous reading of 0.3%, preliminary data showed on Monday. This figure came in stronger than the expectation of 0.3%.

According to the daily chart, the bearish outlook of AUD/JPY remains in play as the cross remains capped below the key 100-day Exponential Moving Average (EMA). Furthermore, the downward momentum is supported by the Relative Strength Index (RSI), which is located below the midline, suggesting that the path of least resistance is to the downside.

The first downside target for the cross emerges at 94.72, the lower limit of the Bollinger Band. Extended losses could see a drop to 93.59, the low of September 11, 2024. A decisive break below the mentioned level could pave the way to 92.79, the low of August 18, 2023.

On the bright side, the 100-day EMA at 98.02 acts as an immediate resistance level for the cross. Sustained trading above this level could attract some buyers to 98.53, the upper boundary of the Bollinger Band. Further north, the next hurdle is seen at 99.17, the high of January 7.

AUD/JPY daily chart

Japanese Yen FAQs

What key factors drive the Japanese Yen?

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.

How do the decisions of the Bank of Japan impact the Japanese Yen?

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.

How does the differential between Japanese and US bond yields impact the Japanese 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.

How does broader risk sentiment impact the Japanese Yen?

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.