The AUD/JPY currency pair edged lower during Friday’s Asian session, dipping toward the 94.00 psychological level, as heightened risk-off sentiment fueled demand for safe-haven assets, especially the Japanese Yen (JPY). 

The downward pressure came amid escalating geopolitical risks in the Middle East, which overshadowed Australia’s largely stable labor market data for May. This informative article from Fletrade’s financial analyst, Brian Elmers, equips readers with a solid understanding of the topic at hand.

Risk-Off Sentiment Lifts Japanese Yen

One of the primary drivers behind the current softness in AUD/JPY is the surge in risk aversion across global markets. The safe-haven Japanese Yen has found strong demand in recent sessions, as traders respond to rising concerns over the Middle East conflict escalation.

Bloomberg reported on Thursday that US officials are preparing for a potential military strike against Iran, raising fears of a broader regional conflict. 

These concerns were amplified by remarks from the US President earlier in the week, who confirmed that he had previously authorized military plans against Iran, although he chose to pause their execution. He further insisted on Iran’s complete abandonment of its nuclear ambitions, a stance firmly rejected by Iran’s Supreme Leader, Ayatollah Ali Khamenei.

This growing uncertainty has pushed investors toward traditional safe-haven currencies such as the JPY, while commodity-linked and risk-sensitive currencies like the Australian Dollar (AUD) have lost momentum.

Australian Labor Data Holds Steady but Fails to Impress

Meanwhile, the Australian Bureau of Statistics (ABS) released May’s Employment Report, showing the Unemployment Rate remained steady at 4.1%, in line with market expectations. However, the Employment Change disappointed, coming in at -2.5K jobs, sharply down from the revised 87.6K jobs added in April and missing the consensus forecast of 25 K.

This softening in employment growth raised concerns about the underlying labor market strength, especially as the Reserve Bank of Australia (RBA) maintains a data-dependent stance on future monetary policy decisions. Although the steady unemployment rate was mildly reassuring, the unexpected contraction in job creation contributed to the AUD’s weakness.

In addition, the weak employment print further undermined the Australian Dollar’s carry appeal, particularly at a time when interest rate differentials are playing a pivotal role in driving currency flows.

BoJ Rate Expectations Provide Limited Cushion to AUD/JPY

Despite the recent JPY strength, it is worth noting that reduced market expectations for a near-term Bank of Japan (BoJ) rate hike could moderate the Yen’s upside. The BoJ has maintained its ultra-accommodative stance, with officials cautious about tightening too aggressively in the face of lingering deflationary pressures and weak domestic demand.

Market participants now forecast that the BoJ may not raise interest rates again until the first quarter of 2026, as its policy path diverges significantly from that of other major central banks. This dovish outlook might provide some relief for the AUD/JPY pair in the medium term, although in the current risk-off environment, geopolitical headlines are having a more immediate impact.

Market Outlook: AUD/JPY Faces Key Technical and Fundamental Hurdles

From a technical perspective, the AUD/JPY pair faces immediate support near the 94.00 level, a key area that has served as a short-term pivot in recent sessions. A sustained break below this level may open the door for further downside toward the 93.50 and 93.00 support zones.

Resistance is seen around the 94.50–95.00 region, where selling pressure has repeatedly capped upside attempts. The overall bias remains bearish in the short term, with momentum indicators such as the Relative Strength Index (RSI) turning lower on intraday charts.

In contrast, the Japanese Yen remains underpinned by safe-haven flows, despite the BoJ’s dovish stance. As long as Middle East tensions persist and global equities remain volatile, JPY demand is likely to stay elevated.

Conclusion: JPY Gains on Geopolitical Risk; AUD Falters on Data Disappointment

In conclusion, the AUD/JPY pair’s softness toward 94.00 reflects a broader shift toward risk aversion among global investors. The escalating Middle East tensions, coupled with a disappointing Australian jobs report, have tilted sentiment in favor of the Japanese Yen.

While medium-term dynamics such as BoJ policy divergence and relative yield differentials may later play a role in determining the pair’s direction, for now, geopolitical risk and investor sentiment are clearly in the driver’s seat.