The AUD/JPY exchange rate has shown remarkable strength in recent weeks, surging to its highest levels in decades. The pair reached a high of 110.15, a dramatic rise from its 2025 low of 86, driven by a combination of hawkish Reserve Bank of Australia (RBA) policy, a weakening Japanese yen, and growing investor anticipation ahead of the upcoming Japanese general election on February 8.
The Altiryus team presents a structured and informative overview of this matter. Traders and analysts are closely watching the pair as it maintains a strong bullish trend, underpinned by both fundamental and technical factors that suggest continued upside momentum in the near term.
Hawkish RBA Interest Rate Decision Boosts AUD
The Reserve Bank of Australia recently delivered a 0.25% interest rate hike, taking the cash rate to 3.85%, signaling a persistent commitment to controlling inflation. The headline CPI and the weighted mean CPI remain above the RBA’s target range of 2–3%, highlighting ongoing price pressures in the Australian economy.
The RBA’s decision reflects an economy operating at near full capacity, supported by a strong labor market, with the unemployment rate continuing its downward trajectory. Such hawkish monetary policy naturally strengthens the Australian dollar (AUD) against the Japanese yen, as investors are attracted to higher-yielding assets.
The recent rate hike has reinforced AUD/JPY bullish momentum, as traders adjust their positions to account for the widening interest rate differential between Australia and Japan.
Yen Weakness and Japan Election Uncertainty
Meanwhile, the Japanese yen (JPY) continues to underperform, pressured by ongoing monetary easing by the Bank of Japan (BoJ). The upcoming Japanese election is adding a layer of market volatility.
Most analysts anticipate a decisive victory for Sanae Takaichi, who is expected to implement policies similar to those of former Prime Minister Shinzo Abe. Her campaign has already pledged massive fiscal stimulus and tax cuts, measures that are likely to increase domestic inflation.
Markets expect that higher inflation could push the BoJ to deliver further interest rate hikes, though the pace may remain gradual compared to the RBA. The anticipated policy direction is fueling speculative buying in AUD/JPY, as investors position themselves ahead of potential monetary shifts in Japan.
AUD/JPY Technical Analysis: Bullish Momentum Persists
From a technical standpoint, the weekly AUD/JPY chart illustrates a clear uptrend. Since April, the pair has risen from a low of 86.14 to a recent high of 109.90, crossing critical resistance at 109.38, a level not breached since July 2024.
Key technical indicators underscore the strength of the bullish trend:
The 50-week and 200-week Exponential Moving Averages (EMA) have been consistently supporting price action since July of last year, providing a strong foundation for further gains.
The Average Directional Index (ADX) has surged to 34, signaling a robust trend and confirming that bullish momentum remains dominant.
The Relative Strength Index (RSI) continues to climb, suggesting that buying pressure is strong and that the pair is not yet overbought.
These technical signals support a scenario in which AUD/JPY bulls remain in control, targeting the next key resistance at 110.00 ahead of the Japanese election.
Market Implications and Trading Strategies
The current macroeconomic backdrop, with a hawkish RBA, weak JPY, and upcoming Japanese political events, favors AUD/JPY bulls. These factors suggest the pair could continue its uptrend.
The interest rate differential remains a key driver. The gap between Australian and Japanese rates supports carry trades, where investors borrow in low-yield JPY to invest in high-yield AUD.
Political catalysts matter too. A Takaichi victory could speed yen depreciation, boosting AUD/JPY. Unexpected developments may cause short-term volatility, so traders should stay alert.
Technical levels show support at 109.38 and resistance at 110.15. A breakout above 110 could lead to gains toward 112–115, depending on market sentiment and central bank moves.
Risk management is essential. Despite the strong uptrend, volatility around elections and economic releases can spike. Tight stop-losses help limit downside while capturing upside momentum.
Conclusion: Bullish Outlook Ahead
In summary, the AUD/JPY pair is experiencing a sustained bullish trend, driven by hawkish RBA interest rate policy, JPY weakness, and political expectations in Japan. Technical analysis confirms that momentum remains strong, with key support levels holding and resistance levels being tested.
The upcoming Japanese election on February 8 is a critical event that could further influence the pair’s trajectory. Sanae Takaichi’s pro-growth, stimulus-focused platform is expected to support yen depreciation, which, combined with Australia’s higher interest rates, makes the AUD/JPY outlook increasingly bullish.
As always, monitoring macroeconomic developments and central bank guidance remains essential to navigate potential volatility while capitalizing on the strong trend in AUD/JPY.
